Future of Insurance
October 2019
From underpants to oat drink makers, Citigroup courts startups for growth
British Prime Minister Boris Johnson said on Thursday that Britain and the EU had agreed a new Brexit deal, but he still faces resistance from other parties in parliament.
If a Brexit deal is finally agreed it will give insurers more time to set up EU subsidiaries, but domestic-focused and smaller firms are reluctant to do this because of the cost.
Another option for those insurers is to end their overseas operations and sell books of legacy business to a specialist insurer.
European insurer Darag – which specialises in buying closed books – has set up in Britain this year, and expects Brexit-related deals. The firm, which now has seven UK employees, has already had enquiries, its chief executive Tom Booth told Reuters.
Chris Fagan, CEO of insurer Catalina, another closed-book specialist, also told Reuters that Brexit could have a positive impact for his firm.
“Brexit is causing EU insurers to look at their structures and this brings non-core lines into focus, leading to opportunities for the acquirers,” said Andrew Ward, a director for insurance deals at PwC.
Fortitude Re, a vehicle set up by U.S. insurance group AIG with investment from private equity firm Carlyle to house AIG’s closed books, is also planning to buy or reinsure other closed books and expand into Europe, four sources told Reuters. AIG declined to comment.
There are nearly $800 billion in closed books of non-life insurance globally, including $300 billion in Europe, according to PwC. Around $9 billion changed hands across 34 publicly announced deals globally in 2018, the consultants said in its first annual deals report.
Closed book specialists take over old policies or reinsure them, reducing risk for the insurers.
The specialists say they can use economies of scale to manage them more efficiently. Some also invest more of the policies in alternative asset classes to increase returns.
“There is a reasonable margin to be made in this area of insurance,” Stephen Roberts, chairman of the Insurance & Reinsurance Legacy Association, said.
Outside the life insurance sector, insurers are usually keenest to offload books of business where claims may still be have to be paid years after an event.
The sector started off with asbestos-related business, but books of business sold these days include motor, medical malpractice and also employers’ liability, taken out by companies to cover compensation for work-related accidents or illness.
Zurich Insurance, for example, transferred UK employers’ liability policies totalling $2 billion (1.56 billion pounds) to specialist insurer Catalina in Dec 2018.
Lloyd’s of London’s decision last year to tell its members to ditch the worst-performing 10% of their business has led to a number of closed book deals, including in poorly-performing insurance classes such as marine.
They include specialist insurer Riverstone’s takeover of policies from Lloyd’s syndicate Advent Underwriting in January 2019.
The market for closed life insurance books is also a large one in Europe, with deals such as Italian insurer Generali’s sale of some of its German closed life business to private equity firm Viridium last year.
Life insurance is less likely to be impacted by Brexit, industry sources say, as the business is often more domestic, and larger life insurers have generally set up the relevant EU or UK subsidiaries.
But for overseas insurers with small UK life insurance business, Brexit could be a catalyst that “may cause people to look again” at their business, Simon True, group corporate development director at closed life insurance specialist Phoenix, said.
ThreatInformer plugs the cyber-insurance data gap
Cyber-risk is a unique problem for companies that need to transfer risk – and for brokers, underwriters and reinsurers trying to understand, price and manage that risk. In spite of this, the market for cyber-insurance continues to grow, with forecasts of $7.6 billion in 2023 from around $4.2 billion in 2017. As the market grows, high-profile companies, such as Marriott, Merck and Equifax, are becoming victims of cyber-attacks and claims costs are rising to hundreds of millions of dollars.
The body of cyber-claims data is much smaller than more established insurance classes. This is combined with the issue of claims data quickly going stale, as cyber-attack vectors rapidly change. As a consequence, actuaries face significant data limitations when predicting the frequency and severity of cyber-attacks.
“ThreatInformer plugs the cyber-data gap for insurance, giving brokers, underwriters, and reinsurers the data to understand and make decisions about cyber-risk”, says Ryan Jones, founder and CEO of ThreatInformer.
ThreatInformer needs just a company name and website to identify an organisation’s external IT systems and collect key risk data from them. ThreatInformer brings together tens of thousands of raw data points to create a unique picture that shows cyber-risk data for any organisation, of any size, anywhere. ThreatInformer’s data shows insurers what’s at risk, the business context, and the level of protection.
When working with reinsurers we’re helping to add depth outside of the traditional aggregate data points of industry, geography, and revenue to manage accumulation risk across portfolios.
“ThreatInformer was developed to meet our clients’ needs across the cyber-insurance value chain. We help brokers to engage with their clients on cyber-risk and get the right levels of protection, as well as giving risk management advice to add further value to their role. Underwriters see the assets of a proposer and their cyber-risks pre-bind to enable confident pricing decisions using consistent, verifiable data. When working with reinsurers we’re helping to add depth outside of the traditional aggregate data points of industry, geography, and revenue to manage accumulation risk across portfolios.”
Ryan Jones, CEO of ThreatInformer, said: “Our priorities in the development of ThreatInformer’s technology were those of our customers. We found a lot of problems with existing risk management vendors in the market, with off-the-shelf solutions that provide subjective metrics, ambiguous risk scores, and black box models.
“ThreatInformer is transparent with our data, allowing our customers to customise our data to their portfolio and consume it in a way that fits how they work.”
Jones saw the need the need in the insurance industry for a scalable and reliable way to gather data while delivering cyber-assessments and incident response at KPMG for leading insurers.
Richard Wells, CTO and co-founder of ThreatInformer, has analysed cyber-threats for the UK government and designed platforms for open-source intelligence gathering and processing for decision makers.
ThreatInformer has clients among brokers, insurers and reinsurers who are using ThreatInformer’s cyber-risk data to make risk decisions throughout their insurance operations.
by Ryan Jones, Founder and Chief Executive Officer, ThreatInformer
How disruptive forces are shaping the next wave of the insurance sector
The insurance sector is facing significant waves of disruption. Important decisions about market positioning, ecosystem relationships, technology investment and skills requirements need to be taken.
Key drivers of change include the evolving nature of risk and liabilities. Advances in technology are also opening up new ways of doing business. In addition, customers increasingly look for simple, intuitive and frictionless interactions with insurers when buying policies and making claims.
Technology is key to helping insurance companies not only respond, but also take forward-looking strategic decisions about their business models. By investing in technology, insurers can give personal lines, customers and SMEs the automated, straight-through, low-touch digital experience they seek. For more complex commercial lines, technology will be required to support individual underwriting and global risk-transfer mechanisms. Insurance firms need to adopt a “digital-first” mindset – understanding what their customers demand and then designing a digital solution.
Insurers are already feeling the benefits of past investments in robotic process automation and digital assistance chatbots. Cloud-based technologies or blockchain could bring new future benefits, and a number of use cases have been developed. At EY, we’ve invested in creating Insurwave, a blockchain platform which can be used to establish smart contracts.
If blockchain and other technologies provide real-time exposure data to all parties, the annual cycle of today’s marketplace could be replaced by continuous contracts
Future developments could transform the insurance sector. If blockchain and other technologies provide real-time exposure data to all parties, the annual cycle of today’s marketplace could be replaced by continuous contracts. Underwriters could use the availability of mass data to develop more granular and bespoke underwriting capability. The development of smart contracts with embedded controls and pricing could create a more seamless experience for all parties – increasing effectiveness, while reducing costs.
There is no one-size-fits-all solution for insurers when responding to the disruptive forces of today and tomorrow, and embracing digitization. However, for many insurers, creating a “smart claims” function offers significant benefits and must be a priority. Data and technology can be used to reimagine the claims process – up to perhaps 60 per cent of claims could be handled digitally. For other more complex claims, artificial intelligence and digital dashboards could help claims handlers make faster decisions.
Achieving such change will require substantial financial investment and human resources. Insurers face challenges in accessing the skills and capabilities needed for new operating models and more automated processes. In claims functions, for example, some roles will require a greater number of highly skilled individuals with stronger analytical ability.
Looking ahead five or 10 years, further consolidation could create a more segmented insurance market with larger players. We could see the development of global ecosystems grouped around broad sectors such as retail, travel, mobility, health and wellbeing, where insurers work together with other entities to create more integrated services and products that bring them even closer to their customers.
Change is certainly coming. Insurers have the opportunity to build competitive advantage by anticipating future disruption and the opportunities that accompany it – using technology in combination with human capabilities to develop customer-focused, efficient and effective operations.
by Peter Manchester, Global Insurance Advisory Leader and EMEIA Insurance Leader, EY
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*Disclaimer: The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
Five things reinsurance execs want technology to do for their businesses
SearchFlow: evolving the customer experience
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If you’ve ever bought a property, you’ll understand just how complex the process can be. The government has, however, pledged to improve the way transactions are handled, and there is a lot of work happening behind the scenes in the industry to make this a reality.
Consumer expectation has changed, and in today’s digital world, they expect to be able to monitor property transactions in real time, access quotes for legal services online at any time, or contact agents or solicitors when convenient to them. This is creating pressure on law firms to provide a more modernised service.
With this in mind, the way solicitors and conveyancers manage property search requirements is also changing, and they are turning to technology to help streamline the process. At SearchFlow, for example, a significant transformation programme has been undertaken, resulting in a new online ordering platform that responds to the changing times.
Led by Kris Clark, SearchFlow’s former Head of Product and Interim Head of Operations – who has since transitioned to Head of AI for SearchFlow’s parent company – the programme focused on bringing the service model in line with the product roadmap, creating opportunities to re-engineer processes and to run a leaner digital-by-default customer operation. The aim of this was to speed-up and simplify the ordering and delivery of property searches for solicitors, using advanced mapping and an intuitive dashboard.
“SearchFlow is a complex business, working behind the scenes in what is a very busy, time-pressured housing transaction market,” Clark explains. “Yet it provides over one million searches and legal reports every year, supporting around one in every four property transactions.
“By the very nature of property transactions, SearchFlow needs to act quickly to minimise any delays in the process.”
Our online ordering platform has the back-up of exceptional customer care from the team and we have empowered staff by reducing areas of responsibility and providing training to improve overall competency and retention
The results of the transformational programme has led to the firm winning two UK Customer Experience Awards: a gold award for Best Contact Centre – Small, and silver in the Transforming the Customer Experience category.
“Outwardly, things seemed okay, but when we scratched below the service we found our team was struggling to keep up with a host of issues resulting in a backlog of work,” continues Clark. “We recognised that we needed to relieve pressure on the team and create a solution that would prevent issues from reoccurring.”
A new search ordering platform has launched that gives SearchFlow’s customers full visibility of transactions online. Case progression can be tracked with hands-on support from the team.
Katriona O’Hare, Customer Experience Manager, adds: “Our service delivery model now aligns to market segments – this gives everyone direct ownership and responsibility for specific actions. The service is more seamless and streamlined. There are no gaps, everyone is aware of their role and we have a motivated team as a result.
“Utilising Microsoft Power BI to bring together all our different inboxes, we created dashboards that provide real-time performance management. We can monitor orders, track KPIs and benchmark all activities against SLAs, even using our mobile phones.
“Now, we go home every day with the satisfaction that all work queues are cleared, we’ve hit KPIs and the board is showing green.”
Tracy Burtwell, SearchFlow’s Sales Director, confirms: “I think it is fair to say we transformed the customer experience from a reactive call centre to a proactive order fulfilment model. Our online ordering platform has the back-up of exceptional customer care from the team and we have empowered staff by reducing areas of responsibility and providing training to improve overall competency and retention. Most importantly, it is delivering what our customers need – the right search, at the right time.”
SearchFlow is now spending 40 per cent less time on support calls, responds to emails faster, and internal escalations have reduced by 80 per cent.
“To win two UK Customer Experience awards is an achievement we are all proud of,” Burtwell concludes. “It recognises our efforts in transforming our approach, using technology, people and better processes.”
The path to an effective digital workplace
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Karl Redenbach, Co-Founder and CEO, LiveTiles
UK banks fail to meet timetable for loan insurance claims, regulator says
Brexit and the general insurance market
As we approach the latest deadline in the Brexit saga, there is a huge amount that remains uncertain.
Although the possible outcomes open to this or any future government are still very wide, it is still best to think about Brexit in terms of the most disruptive scenario – a no deal – and the most important stakeholder – the public.
For consumers, the most immediate impact of a no-deal Brexit scenario will be on travel insurance, specifically in relation to the European Health Insurance Card (EHIC), which will no longer retain any validity.
The EHIC is likely to be suspended from day one if we leave the EU in a no-deal scenario, as no implementation period or replacement system will have been agreed, and both treaties and legal agreements between the UK and the EU27 will no longer apply.
Although changes to travel insurance may seem like a relatively trivial issue compared to some of the scenarios considered in the government’s planning for no deal, it is worth remembering that for millions of UK citizens, it provides the their only affordable access to healthcare when they go on holiday.
The key risk is that people who have never bought travel insurance when travelling to Europe may continue to ignore the need for cover, either out of habit or out of a lack of awareness of the implications of a no deal. For those that go on to have a health emergency while travelling, the cost of not having cover could be financially disastrous.
For those that go on to have a health emergency while travelling, the cost of not having cover could be financially disastrous.
The machinations of the wholesale insurance market, which is focused on larger, and often multinational clients, may seem more distant to the public, but they still have a huge impact on our lives, providing the risk management tools that enable industry to function and vital services to be carried out.
This part of the market faces its own challenges in a no-deal scenario, and although firms in this sector have the resources to develop workarounds that will allow their business to function in extreme circumstances, a huge amount of management time and effort has already been spent in no-deal planning. Much of this effort has focused on the corporate governance changes needed to provide contract certainty to clients across Europe. This vital work has averted chaos for the public, but it is hard not to think that this effort could have been better spent on developing new products and services if the Brexit transition process had been less chaotic.
As this chapter in the Brexit story draws to a close, it is important that we all resolve to create an environment where confidence and the supply of vital products and services for the public takes precedence over political brinkmanship.
by Dr Matthew Connell, Director of Policy and Public Affairs at the Chartered Insurance Institute
Insurtechs are helping to shape the future of insurance
The rapid advancement of digital technology is ushering in new ways to sell, buy, service and settle insurance. For some time, insurtechs, with their nimble, digital-first operating models, have challenged the status quo. In the early days, many believed insurtechs were disruptive to the industry, but the view has shifted. Insurtechs provide digital roadmaps to a sector that has been slow to invest in digital solutions, and they are digitising the customer life-cycle and enabling insurers to elevate customer experience. They are also bringing to market solutions that simplify business processes such as underwriting and claims. And insurers are paying attention.
According to Venture Scanner data, since 2009 around $31 billion has been invested in insurtechs, and 2019 is shaping up to be the strongest year for funding since 2014. There are nearly 1,600 insurtechs globally, with about 70 per cent based in the United States and Europe. Most insurtechs – about 20 per cent – are insurance marketplaces/comparison engines, such as Confused.com in the UK or CHECK24 in Germany. These start-ups connect buyers with sellers, but don’t often sell insurance or underwrite policies.
Considering where funds are being invested, 65 per cent of cumulative funding has accrued to digital property and casualty (P&C), life and health insurance companies. These digital-first insurers pride themselves on developing innovative ways in which consumers can buy and use insurance and initiate and settle claims, with mobile functionality and applications being key differentiators relative to the old guard. A great example is late-stage US-based Trōv, a P&C insurtech that allows customers to obtain on-demand coverage for simple assets such as cameras and bikes with a swipe on their smartphones. Another example, late stage US-based Lemonade, an insurtech that focuses on home and contents insurance, enables its customers to buy insurance and settle claims using their smartphones. Lemonade recently moved into Europe, so it’s one of the first insurtechs to scale globally.
For insurers, insurtechs will drive automation in their business processes that drive profitability and operating efficiency
But it’s not just about direct-to-consumer opportunities. About 15 per cent of insurtechs focus on insurance infrastructure and back-end insurance solutions. These insurtechs are bringing capabilities to market that enable insurers to underwrite and bind policies faster and expedite claims settlement. For example, seed-stage Israel-based Binah.ai has a solution that enables life insurers to get real-time health evaluation insights from customers via their mobile phones – insurers can ask fewer questions, thus expediting the policy application process. Early-stage Canada-based Chisel.ai has a commercial insurance capability that enables brokers and carriers to automate high-volume, routine underwriting and brokering tasks. And late-stage France-based Shift Technology has solutions that leverage artificial intelligence to help insurers detect fraud and pay claims faster.
Incumbents have not been blind to the rapid emergence of insurtechs – they understand the opportunity they present and their strategic objectives have adjusted to a new paradigm where insurtechs become a part of their ecosystems through various financial mechanisms. Insurers have established venture funds for direct investments (such as France-based AXA Venture Partners), they have created incubators/accelerators to invest in and mentor insurtechs that fit within their business ecosystems (such as US-based Metlife’s Metlife Digital Accelerator), and they are buying insurtechs outright to build capabilities quickly (such as Germany-based Allianz, which acquired Finanzen.de, a B2B insurance leads marketplace). In addition, the sector has consortiums in place to advance innovations, such as the Blockchain Insurance Industry Initiative (B3i).
Most insurtechs are in the early stages of development and Forrester thinks many won’t survive. Those that do will continue to bring to market digital capabilities that enable customers to engage with their insurers, when, where and how they prefer. For insurers, insurtechs will drive automation in their business processes that drive profitability and operating efficiency. With continued advancements in the capabilities of artificial intelligence, machine learning, data capture and analytics, insurance will become personalized, customisable and on-demand, and priced using real-time data. Insurtechs will, undoubtedly, play a major role in shaping this future.
by Jeffery Williams, Senior Analyst, Forrester
Polaris is evolving to meet the needs of the insurtech community
The future of insurance
It’s been more than four years since the term insurtech was coined. Back then, a surge in interest in deploying new technology, data and analytics to improve all parts of the insurance buying process held the potential for radical change. Disruption in financial services saw the emergence of challenger banks. Today, costs have been reduced and customer experience has improved. If even banking could be fun, surely insurance would be next?
The message has got through – few in the insurance industry would claim that better data, analytics and technology are not a critical part of their future success. The recently published Blueprint One by Lloyd’s of London identifies how it will deliver on the Future of Lloyd’s manifesto. It provides an excellent vision for any insurance organisation of how the world should look a few years hence.
But don’t mistake a clear view for a short distance. Just because we know what the future looks like doesn’t mean it’s going to be easy to get there, nor does it mean it will happen fast.
Insurance is a grudge purchase. Other than the risk-obsessed or the highly analytical, few people, or companies, want to spend money on it. The future of insurance is not going to be about making buying insurance fun, it will be about making it disappear.
Most of us are terrible at assessing the true risks around us. We overestimate the true risk of what has happened most recently, the things that have impacted us personally and what we can’t control. We underestimate the impact of events that happen infrequently, that have happened to other people and those we think we control. People are often more scared of flying than driving to the airport, yet there is a far greater likelihood of having a fatal accident in a car journey than in a flight of the same duration. Some of the innovations in insurance in recent years have failed because they assumed people wanted more options about how to insure their possessions or insure against bad things happening. The reality is that we don’t want to have to make more decisions about insurance. It’s painful thinking about potential losses, and we see no immediate benefit from spending money on insurance. We tend to ignore it if we can.
Most of us buy insurance because it’s a required condition of something else, such as car insurance in order to drive, household insurance to get a mortgage or liability insurance to run a business. We’ll accept it if we get it for little or no cost (health insurance as an employment benefit, for example).
Some of the innovations in insurance in recent years have failed because they assumed people wanted more options about how to insure their possessions or insure against bad things happening.
It’s often painful to buy insurance – and even more so to make a claim. We can spend hours providing information online or by phone to get cover that reflects our needs. Or we can buy on an app on our phone and risk something that doesn’t match our needs. Either way we rarely properly understand what we are actually covered for and suspect (often correctly) that we are duplicating our cover between different insurance policies in some areas, and have glaring holes in others. Traditionally, it was the role of the broker to ensure that we had adequate cover across all areas of our lives and businesses.
That worked fine when most of our risk came from physical assets (houses), or lives, where a loss was generally beyond doubt (your house burns down or you die) and the risk could be assessed by actuaries and understood by the policy holder. Today, much of our value lies in the intangibles of our digital lives. It’s much harder to know what our exposure to cyber-risk is, or reputation, or liability is. At the same time, the old broking advisory business model is proving expensive and unable to deliver the depth of advice to keep up. Individuals and small businesses are being encouraged to go directly to the insurer and corporations are looking beyond their brokers for advice. Unless we have to buy the insurance, people (and companies) often ignore it or defer the decision.
So where does that leave the future of insurance? As consumers and companies we want to avoid the pain of a loss, but we are rarely prepared to pay the “fair” price to offset that pain. We are also not great at risk management. It’s hard emotionally, and accurately, to assess the cost benefit of paying for risk mitigation measures in our lives to prevent future losses.
The easiest way to do something is not to do it all.
Human nature isn’t going to change anytime soon, so insurance needs to. The core fundamentals of insurance aren’t going away, but they will look very different. At some point the concept of buying insurance as a separate protection will vanish. Insurance will become embedded into our purchases and corporate spend. Regulation will ensure the protection for loss still it exists, but the onus will be on the provider of the services not the buyer. The easiest way to do something is not to do it all. We will not have to grapple with understanding our various insurance policies, because they won’t exist. If we lose, burn, break, flood, crash or hurt things, they will be put right, sometimes before we even realised we had a problem.
It’s not going to happen soon, but in the meantime, look out for the insurers, innovators and technologists that are making insurance easier and clearer. A few might succeed in making it fun, but the best will be making it invisible. They are the future of insurance.
by Matthew Grant, Partner at Instech London and Executive Director at Abernite
Fiscal crises biggest risk to global business, WEF says
The possibility of a fiscal crisis is the biggest risk to doing business globally, according to a survey of World Economic Forum business leaders published on Tuesday, though there were strong regional differences in views of the biggest risk.
In North America and Europe, cyber attacks were considered the biggest risk. Environmental risks were the top concern in South Asia, which highlighted water crises, and in East Asia and the Pacific, which identified natural catastrophes.
Overall, the executives put fiscal crises as the top risk over the next 10 years, followed by cyber attacks and unemployment or underemployment, the WEF’s Executive Opinion Survey showed.
The survey of 12,897 business leaders from 133 countries makes up part of the WEF’s global competitiveness report, published before the January Davos forum.
“At a time when global economic growth appears fragile, business leaders are deeply concerned by their governments’ fiscal resilience,” said Emilio Granados-Franco, head of globalrisks and geopolitical agenda at the World Economic Forum.
“Meanwhile, cyber threats remain a major risk due to their rapid evolution and increasingly disruptive potential.”
The survey was published by WEF together with Marsh & McLennan and Zurich Insurance.
Source: by Carolyn Cohn, Reuters
