The (re)insurance industry is primed for a paradigm shift as multiple potentially market-changing developments converge on every front, from the risk environment and exposure data to product development, regulation, technology and client relationships, says Benedict Burke, chief client officer, Global Client Development.
Earlier this year, John Ludlow, CEO of the UK risk managers’ association AIRMIC, said the insurance industry was in the very early stages of a technological revolution which would result in unforeseen and unintended consequences, creating many losers and only a few winners. It was a powerful and thought-provoking statement. The rate of change, particularly in technology, is a huge opportunity for the (re)insurance industry, but it is also a threat to those who do not adapt quickly enough.
For (re)insurance companies to stay ahead in this fast-evolving environment they must understand the levers that are driving this market shift. On October 17, a panel of leading industry figures joined the Crawford® Advisory Council meeting in Chicago to identify and discuss five principle levers, outlined below.
The risk remit of the (re)insurance industry continues to expand, driven by emerging perils and the evolution of established exposures. Risk factors such as declining global resources, the rise of intangible risk, social inflation, the threat of systemic cyberattacks, the countdown to the next global pandemic, the growing complexity of supply chains, the rise of new technologies and the decline in control levels are dramatically altering the global risk profile and putting the industry’s ability to underwrite accurately to the test.
Cyber risk, in particular, continues to challenge conventional approaches to modeling, pricing and portfolio management. Yet even highly-modeled peak perils are generating shock losses as demonstrated by recent examples of extreme loss creep from hurricane events, while secondary perils such as wildfire and convective storms are weighing heavy on company balance sheets.
Such dynamics demand a much granular data-driven risk understanding and a reassessment of industry approaches to risk. The industry must not only capitalize on its own and third-party datasets but also continually test and reevaluate prevailing models.
In a world of instant access, automated processing, bespoke solutions and increasing self-service, customer interactions are fundamentally changing. As mega organizations like Amazon and Google explore opportunities to apply their huge datasets and complex algorithms to insurance, the (re)insurance market must take steps to elevate the customer experience, from initial policy through to claim payment.
The new generation of customers wants insurance to enable lifestyles as much as protect property. They want to buy insurance the same way they buy goods – online. Auto and some other personal lines are leading the transition to digitalization, with quote binding completed online in seconds, and this approach will over time increasingly be adopted in commercial lines.
High volume risks will increasingly become automated and commoditized. In fact, KPMG suggests that only 20- 30 percent of all claims need human intervention to address questions over coverage or quantum of loss. Against this backdrop, specialization and loss prevention will move to the forefront, with predicting and preventing claims adding value to client relationships and large and complex risks increasingly addressed at C-suite level rather than by risk managers.
Data & technology
Rapidly evolving tech offers the potential for enhanced speed, efficiency and responsiveness at every stage of the value chain. The huge expansion in available data and advances in analytics can elevate exposure insights to new heights. The industry has already invested heavily in slick front-end portals designed to enhance customer experience, but many back-end systems have a lot of catching up to do.
It is essential that companies move away from the old siloed approach in which claims, underwriting and actuarial departments all work separately. Embracing a holistic approach is key, with vertical integration creating valuable feedback loops across organizations, driving better outcomes every stage of a policy. However, transitioning from legacy systems is a complex and expensive process.
If the claims process was designed from scratch today, it would probably look quite different. Crawford has invested over $1 billion in new technology in the past seven years, but there is still a long way to go as we strive to make claims as efficient and digitized as possible.
The changing risk environment also calls for a re-evaluation of the product base. Today’s major risks have more to do with intangibles such as intellectual property, data and reputation, which are increasingly seen as primary assets. The industry must find ways to more accurately assess loss potential from these intangible risks and innovate to design profitable new products to cover them. The increasing prominence of solutions based around specific industry verticals is also impacting the underwriting and the claims process, driving up the need for highly specialized expertise.
The advent of parametric solutions is a potential game-changer, introducing a new dynamic to both underwriting and the assessment and payment of claims. By providing fast payouts for clearly defined product triggers, parametrics allow coverage to be tailored and removes any confusion for the insured over whether they are covered or not, eliminating potential pain points in the claims process.
Better articulating the differences between parametrics and traditional coverages is important, as there is still a misconception that the two solutions are mutually exclusive when in fact they complement each other well if used in combination. We are yet to see larger parametric policies tested with claims, however, there is no doubt these products have huge potential.
Meanwhile, the regulatory and compliance burden on (re)insurers continues to grow, with regulations in areas such as cyber security and data privacy, customer best practice and fraud prevention evolving all the time, and the need to demonstrate capital adequacy heightened by increasing loss severities and frequencies in addition to socio-economic and climate uncertainty.
Responding to regulatory change could distract some from the task of reengineering underwriting, claims handling and customer service, but for others it may present an opportunity to differentiate and gain a competitive advantage. However, it is vital that the industry as a whole works together to better communicate the societal benefits that (re)insurance brings at a time when public confidence in the sector is low.
Picking up the pace
The (re)insurance industry does indeed have much to address – from acquiring the talent and technology to evolving value propositions and enhancing service. The transition from legacy processes to faster, more efficient underwriting and claims is under way, but must accelerate. Our industry has been slow to react in the past but cannot afford to do so this time or it risks being left behind.
There are clear signs that (re)insurance carriers are heeding the warnings of previously missed opportunities to keep pace with change and momentum is building across the market on multiple fronts. We can, as an industry, make huge forward steps if we have the courage, the commitment and the foresight to take them. Failure to do so will result in severe and deserved