Last year, we have witnessed (again!) disruption and this new reality is being shaped in the insurance industry.
We might be asking ourselves: “Where is this all going?”
Since we don’t have a crystal ball, we do believe that the future starts now. Knowing that we’ve deeply appreciated AptConnect 21 session with Brian Heale, Senior Presales Consultant at Aptitude Software and Sid Dash, Research Director at Chartis Research. We’d like to briefly go through most of the presentation’s content, hoping that it will help you navigate through your daily challenges.
Enjoy your reading!
THE LANDSCAPE OF DRIVERS FOR CHANGE IN THE INSURANCE TODAY:
Source: AptConnect21 “Better, faster, smarter: what’s next for post-insurers compliance” session
Key things that stand out for Sid Dash from Chartis Research:
1. Digitization process
Today, it’s more than ever about adopting new technologies. It stands out so strongly and it changes the way you think about your operations and how you can improve them. The game-changer here is that all your operations are electronic. The importance of this can be learned from banking experience.
2. On modelling side
We are starting to use new mathematic models e.g. reverse testing. New computational abilities allow us to use new math techniques and provide more simulation at granular levels. We knew that in the past but the architecture was not available. Now it is.
Obviously, Covid-19 had a great impact as unknown insurers’ losses may occur as significant e.g. the Lloyds market estimated 6,2B of Covid-19 claims.
Covid caused a lot of unpredictability around uncertainty. This will impact investments in insurance.
If you look at what has happened with COVID-19, it’s not the disease but the cure that had a dramatic impact. The lockdowns, break-in supplies and travel chains – this changed how we deliver our resources. Probably the most consequential impact is not in the direct consequences but influencing the 2nd or 3rd level.
An example: the way people have re-thought their lives and how this is impacting the employment market. Changing employment patterns – more people work from home – it’s an opportunity to insure new small home-based offices.
As we’re witnessing more bushfires, floods etc. it seems that the frequency of these events is increasing. This is directly linked to certain risks and future claims. And most important to economic volatility.
This has an impact on insurers from the liability side. How do you incorporate aspects of flood zone real estate into your policies?
The shift to new energy sources will show results in 30 years or so. The last time we witnessed shifts like wood to coal or coal to oil it was monumental – it changed capital markets, geopolitics etc. The same wide impact of the energy transition will be long term. Electrification requires more metal development e.g. copper. We will see organisational volatility and substantial market volatility e.g. Russia is into natural gas. Markets have to be redesigned so there is proper capacity planning and management. New constructing supply chains across almost all sectors will take a long time. Hence, we need to pay more attention to market design e.g. new insurance contracts on energy risk. Which new assets will do well and how will they navigate volatility?
When we discuss insurance digitization it’s as much as individual technologies, as individual consequences. The topic to notice is: do you look at your digital assets the same way as you’d be looking at your physical assets?
Once you capture contracts digitally, you can historize them, structure, analyze and look literally at the efficiency of it. You can look at your interface – monitor channel integration, monitor failures. So digitization is looking at the computer infrastructure, operational process and looking at it in a single, consistent way. How do you monitor, how do you control and discuss risk?
The process of digitization has already started and now it’s accelerating. Numerous technologies are driving that acceleration. Some of those to have the most dramatic impact would be robotics/chatbots and the democratization of the automation world.
We see plenty more opportunities to benefit from digitization across the entire organization e.g. build scripts or customized interfaces. A lot of this stuff seems simple and mundane in the beginning. Yet, if you back your entire value chain with it, then loads can be automated and it affects the whole cycle – from claims to analytics e.g. the whole analytics could be cleaned up automatically rather than by copying spreadsheet A to spreadsheet B.
The long term consequence of digitization is that those who don’t get it right will have a strategic gap vs. the ones who do.
Thoughts about the cloud
Cloud is either getting someone else to host applications or getting one of the big cloud providers to host your applications.
When you design your software with having the cloud architecture in mind, then you really make fundaments for the digitization process.
An interesting aspect is no code technology. Today, we have millions of lines of code and you can start initiating drag&drop environments; soon we will see no code analysis – which creates new business opportunities.
However, the challenge of Cloud or Blockchain is that they take insurance into unfamiliar terrain. Now, it’s all about cyber risk – something which insurers typically insure for, but did they think about exposing themselves? Traditionally insurance is not taught very much about cyber defences unlike more infrastructure industries e.g. cyberbanking.
INSURTECH – PARTNERING FOR SUCCESS
Partnerships outsourcing to the cloud can mitigate some of today’s issues. How do you prepare for successful ones?
- A clear understanding of the objectives – having done the research about them and knowing what that will bring.
- Understanding customer requirements – that’s where a partner can help because they can have a better understanding.
- Take a bold approach – but again, bear in mind the understanding about risk-taking.
- Prepare to change existing business models
- Develop start-up ecosystems – vendors and insurers getting together to set up a cooperative view.
- Create an open architecture e.g. active API’s to absorb other technologies. But this can be difficult in legacy architecture.
A slightly pessimistic view on things is that partners can also bring risks. Once you integrate 3rd party system you’re open to the cyber risk of your partner.
We’re witnessing paradigm-shifting from protection to prevention, but insurers are uniquely positioned to take advantage of this new view. As you move on to become an activist manager, you need to pay more attention to your infrastructure; own and control your infrastructure. It becomes fundamental to the process.
We can observe how critical customer journey becomes a differentiator, in particular, with new wave insurers who like to cherry-pick risks.
CHANGE IN MODELLING PARADIGM
We can see now a direct impact on the insurance pool – as you change forecasting methodology (from protection to prevention) you shift the nature of the model. Equally, new risks require new techniques/stat methods as they are not linear and you need machine learning for that. Technology is available – whether in the cloud or hardware acceleration or new languages.
A more complex list can be found below:
How confident are you with your future projects?
If you’d like to get additional consultation, reach out to us via: https://fiit-consulting.com/free-consultation/