Risk Management & the Future of Insurance
April 2020
Agile and social digitisation of risk transfers in a time of remote teams and enhanced competition
Trust is a key ingredient in transferring risk. In both insurance and reinsurance, deals have been built on reputations, handshakes and business meals. Lots of them. And until now, building trust has been mostly a face-to-face business.
Like so many other industries in the Covid-19 era, this is quickly changing. The pandemic is playing the role of lead catalyst for major trends. This places a huge amount of pressure on the system – to link and establish trust with new participants and sources of data in minutes in order to secure the best placement. Practitioners find themselves challenged to rethink how they connect and build trust, when they have never met another party.
Three new trends converge to heighten those challenges:
First, the capacity provider response time has become the real competitive differentiator, by which deals are won or lost. Product cycles were shortening even before the crisis, but now, insureds actively use technology to secure the best pricing and coverage. Time-based competition is finally entering the insurance and reinsurance arena. With new economic pressure, this trend will only intensify, pushing efficiencies in all risk transfer backend processes, in a drive to increase speed-to-market. There will be less time and resources for placements, let alone trust-building.
Second, access to insurance and reinsurance capacity has tightened. Insurance-linked securities are again on everyone’s lips, and other risk vehicles are being structured as we speak. Relying on capacity from personal connections is being challenged. Placement professionals increasingly need to reach well beyond their known established markets to write a deal.
Third, risk transfer business models are rapidly evolving, as a result of both competitive pressures and technology lowering barriers to entry. We witness a convergence of risk transfer organisations, with reinsurers, carriers and brokers moving into each other’s businesses. Right now, CEOs and COOs are looking to automate more, CFOs are scanning the organisation for efficiency gains, and exposure and claims management is front and centre. Old networks are being challenged to keep up, and need to be assisted by technology more than ever.
One thing is certain: all those trends are intensifying, into a continuous whirlwind of volatility.
Yet this evolution is poorly supported by core systems. To adapt, billions in capex and opex are invested in risk transfer technologies. But billions are also wasted.
Leveraging our team’s cross-functional expertise, we see three absolute requirements for risk transfer systems in the future:
Technological agility. Companies are building rigid systems that will not flex easily to new market dynamics: leveraging what is known as a waterfall methodology, some IT leaders plan their entire solution upfront to the nth degree of detail, inventorying and mapping every little field for every scenario, before building anything. This “boil-the-ocean” methodology virtually guarantees an over-budget, over-engineered, underused system that will need to be replaced within a few years – if it ever actually makes it to production. New systems must be easy to evolve, connect, and reconfigure. They must start small with successful usage metrics, and expand from there in an agile manner.
Social connectivity. Given their complexity, risk transfers still rely on trust and relationships. Until they embrace that critical element, all placement systems will be relegated to just a necessary evil, an extra step that comes after risk transfers have been negotiated and structured. Accounting is important, but it helps less with business results than landing on the right placement structure collaboratively. Think braided organisations at the service of rapid (re)insurance. Digitally recreating and enhancing the social networks of risk transfer is what is needed now.
Quicker access to capacity. Practitioners must find the most relevant sources of coverage without delays, or risk losing deals. The system must not only take care of the administrative details, but also offer options and recommendations, and help all sides come together and bind. Placement performance, acceptance rates and quote response time must be tracked and communicated to improve performance. Brokers have a special role to play in that regard, to help curate and animate deal-focused networks. The right systems augment those people networks with networks of data and systems. They must also be inclusive of various sources of capacity – whether insurance, facultative or treaty reinsurance, ILS or other emerging forms.
To watch the video click the link below
Interested in the agile risk transfer and its social digitisation? Here is what you can do to explore that further:
• Check out a home-made video (literally) of Greg Boutin talking further about remote team and risk transfers, and a special trial offer for Relay Platform at youtu.be/QSgxGi7_Pvc
• Learn and read more on this topic, and Relay, at relayplatform.com, including our latest post on Digital Risk Transfers in Insurance & Reinsurance: Time to Act – but Act Smart
• Test-drive Relay today by signing up at app.relayplatform.com/signup or emailing contact@relayplatform.com for a demo
By Greg Boutin, CEO, Relay Platform
Managing identity risk is the key to establishing trust in a digital world
In the financial services sector alone, the percentage of banking products consumers can open through digital channels has jumped from 43 per cent to 76 per cent since 2018 – and about 90 per cent of these can be opened from mobile devices. Not only do businesses want assurance of who is who on their platforms, consumers and users are increasingly asking the same of their providers.
The requirement to prove who a user is in the digital world is essential for access to an ever-expanding online universe. For businesses, how they ask for and verify proof of identity from current and potential customers is also a key factor in determining their ongoing success.
Yet many of the identity verification solutions being used are becoming increasingly antiquated. As businesses expand their footprint across the digital world, it’s important to realise the days aren’t the same as they are on Planet Earth. Today’s state-of-the-art, intuitive user-experience is tomorrow’s dusty relic. Modern bandits are using advanced technology to break traditional digital security in ways we haven’t even heard of yet. Industry experts continue to sound the alarm that knowledge based answers (KBAs), two-factor authentication (2FA), and password logins are not secure, after hackers in 2019 exposed an estimated six billion records. What’s more, false identity theft claims are skyrocketing – there was a 400 per cent increase in reported credit washing at large lenders between 2018 and 2019. It seems like our digital planet has entered the fraud age.
This is a pivot point. Both conceptually and practically, fraud and risk management relating to identity on “Planet Digital” will be far different in the years ahead. Let’s bring this into a simplistic real-world example of how a person’s identity plays an integral part in onboarding, and how it’s changing in real time…
Opening an account at a bank in 2020 vs. 2000
The year is 2000. The physical world. We walk into a local bank’s branch, complete the paperwork, present our identification along with the required cash and wait for the cashier to validate our authenticity. After hand cramps from signing dozens of documents, some friendly smiles, and couple of banalities, it likely took an hour to wrap up – not including travel. Enough time to download most of our emails from a dial-up connection… as long as they don’t have any pictures.
The year is 2020. The digital world. We grab the supercomputer from our pocket, open it with a fingerprint, and locate our bank’s mobile app in the organised folder that houses a dozen other fintech services. We want a new savings account, so we e-sign the necessary documents with the flick of a finger, and take a picture of a cheque that’s deposited immediately to fund it. It takes roughly 15 minutes, and our money is loaded into our mobile wallet. The only people we talked to during this process were friends on WhatsApp we’re planning to meet at the pub later tonight.
Therein lies the risk with the ongoing shift to a digital-only world. Though we’ve glossed over many nuances of risk and fraud management roadblocks for the year 2020 example such as peer-to-peer transfer limits or cheque/deposit holding times, at the very least there’s an identity touchpoint during the onboarding stage in the year 2000 – we were talking to a person (the cashier or bank manager) in the physical world, and given them an identity document to prove we’re real. Enterprises that want to grow on the digital frontier need a process to verify identities on their platform – and they need it before tomorrow.
The digital frontier is still risky, but there’s opportunity to unlock
Technology innovation is relentless in the digital age. While it’s incredible to daydream about where businesses will be a year from now, Moore’s Law doesn’t just apply to the good guys. As businesses innovate, fraudsters innovate faster. The thought can be particularly scary – especially when there’s significant investments at stake.
Though it’s hard to have 100 per cent assurance that a digital platform will be entirely risk free, it’s still possible to fight fraud while growing digital channels and onboarding good customers. An identity verification solution can be a useful tool that provides certainty in the uncertain world by accounting for three important aspects digital companies are trying to balance today: risk assurance, customer’s expectations for convenience, and spoof-proof technology.
Risk assurance
Risk assurance will largely depend on the industry and organisation’s tolerance. Banks and consumer companies want to onboard a lot of customers quickly, but each has different regulations they must adhere to. Irrespective of whether a company has KYC compliance prerogatives or wants to ensure bots don’t get onto your platform, identity verification technology can be scaled to provide comprehensive oversight in heavily regulated industries, to peace of mind for businesses who simply want to know their customers are real.
Customer expectations
Customers expect the convenience digital platforms provide, but don’t mind security measures when they’re natural. And as more people want to maintain control of their personal identifying information, they’ll look for businesses that take extra care and precautions to identify all people on their platforms. Adding in an identity verification solution can satisfy both customer ‘s needs – tell customers you need a picture of the driver’s licence that technology can quickly verify, and they’ll feel comfortable using your platform because you take security seriously.
Spoof-proof technology
Many industries today use identity verification tools to onboard customers in mobile apps, hire rideshare drivers, or conduct online and app-based money transfers. But fraud advancements ranging from deepfakes to traditional fraud such as forged documents helps a fraudster skirt through identity checkpoints in both the real and digital worlds. However, new identity verification solutions with features such as “liveness detection” and artificial intelligence document review can prevent a fraudster from circumventing new and old roadblocks.
Conclusion
The year is 2020. The shift to a digital planet is already in motion, and it’s not stopping. Traditional methods of face-to-face identity verification that companies used yesterday to mitigate risk are virtually impractical today – customers aren’t going to start an application on their computer only to be told they need to travel to a physical location to confirm they’re real. And with each passing day in the digital world, sophisticated fraudsters are finding more ways to steal money and identities.
Both consumers and businesses face risks by not using an identity verification solution in the digital world. Businesses embracing the shift to digital-only channels should want to know the people on their platform are real. Consumers want to use platforms that balance both convenience and security. As economies, consumer habits and digital channels change, it’s important to find a solution that helps you onboard good customers and explore the digital world with certainty.
By Joe Bloemendaal, Head of Strategy, Mitek Systems
Find out more at miteksystems.com
Sources
Frankonfraud, Welcome to the Age of Fraud December 2, 2019. www.frankonfraud.com/fraud-trends/welcome-to-the-age-of-fraud-top-10-predictions-for-2020/
Mitek, The Future of Identity, July 2019. www.miteksystems.com/files/docs/future-of-identity-whitepaper.pdf
Speech recognition technology is ready to be consumed by the masses – so, what’s next?
Ian Firth, VP Products, Speechmatics
Speech recognition is in great shape – accuracy levels are good and improving all the time. The accuracy is no longer focused on the easy scenarios, but is now being used for noisier, harder conversational use-cases, making the technology practical for real-world applications. This is supported by the ability to deploy the technology in scalable ways that meet business needs, offering on-premises models as well as a public cloud.
What’s ready today?
The way it is consumed is getting easier too. Speech recognition can support things like multi-accents and dialect models to avoid the challenges of managing deployments for the diverse world that we live and operate within. Speech technology is not just for English either – it also supports native speakers of a growing range of many different languages. The capabilities of speech technology are ever increasing, enabling businesses to operate globally with the same scale and support that they would have in the English-speaking world.
Current challenges the industry still faces
There is always greater possibility in any industry. Non-English support for speech recognition is not as good as it is for English in many cases, especially taking into account accents and dialects. With the support for multiple languages comes the challenge of understanding which language is being spoken. This means that the ability to detect and decipher language itself is still a growing need. Language identification and detection and code switching are now becoming increasingly important to the adoption of speech technology, but still remain a challenge for most speech technology providers. Personalisation to specific users and use-cases is still very much a challenge but the foundations have been laid with features such as custom dictionaries and are expected to get better in the short term.
It's not just words that are used to convey meaning in conversation. Sentiment, the speaker, hesitation and non-speech sounds all provide additional context and meaning. There is still work to do here to enable the wider meaning of speech to be determined.
What’s the potential for speech technology over the next few years?
Ultimately, what we really want is to truly understand the spoken word, not just transcribe what is said. That is the journey that the technology is now very much on. Understanding means supporting continuous intelligence within businesses. Enabling that understanding in real-time enables actions to be undertaken in line rather than out of band. Understanding also means using all the available context. So, that means looking wider than just the words. It means listening to sounds and sentiment but it also means using images, video and textual forms of communication that might be available to provide the deeper meaning of the communication. As speech technology continues to develop, we expect to see a broader range of useable outputs from speech analysis such as call-steering, detailed sentiment and extending voice control capabilities.
All of this advancement needs more and more data to be processed. The long pole here is having enough labelled data to support the learning required. We are undertaking some research to enable this to be less human-intensive and provide much faster learning that is continuous. These developments will unlock the power in understanding that will form the next big step in speech recognition technology.
Find out more about benchmarking speech technology providers here.
New opportunities for investors after European Commission adopts EPRA proposals
The decision last year by the European Commission to accept changes advocated for by the European Public Real Estate Association (EPRA) to reduce the Solvency II capital requirements for investments in listed real estate will open up new opportunities for investors.
The move will see a new capital requirements risk module for long-term investments in equities reduced from the 39 per cent standard equities module to a now favourable 22 per cent, after the European Commission acknowledged there was a difference between such investments and other, more risky equities. The initial figure of 39 per cent also compared unfavourably to non-listed direct real estate, which stands at 25 per cent.
“We appreciate the Commission’s recognition that equity capital charges were too high for insurers taking a long-term approach to investment,” said Dominique Moerenhout, CEO of EPRA. “The regulation suggested that listed real estate assets should be treated the same as short-term equity holdings, which is a common but grossly misplaced representation of the long-term investment opportunity the listed real estate sector presents.”
The initial changes came into effect in June 2019 following a three-month consultation period and a two-year lobbying process by EPRA. “The first time we heard about Solvency II was when our members who are insurance companies were coming to us and saying they’re quite heavily invested in our industry and would like to be even more, but there’s new legislation coming in which is going to be an obstacle,” recalls Mr Moerenhout. “The more we understood the principles, the more we realised that this law was one of the main obstacles to investment in our specific industry.
“EPRA pushed for the reduction, arguing that the impact of stock volatility on the performance of listed real estate was ironed out over time, and that over the long-term it offered a similar risk and reward profile to unlisted property.”
The challenge now is to ensure those working in the insurance sector are aware of the amendment, and the opportunities this opens up. Initial feedback has been extremely positive, says Moerenhout, but often more reassurance is needed before the anticipated additional investment in real estate can be released.
The capital rule changes require the average holding period of listed real estate investments to exceed five years, which is an improvement considering the European Commission’s initially proposed 12-year period. Nevertheless, insurers must demonstrate their intention to hold the investment for such a period. This requires a considerable amount of documentation and could prevent the new regulation from being an immediate relief for certain insurers.
But there’s no doubt that the success in overturning the original requirement has paved the way for investors looking to take advantage of the considerable opportunities that exist in listed real estate, as part of a balanced portfolio. “The changes to capital requirement rules mark significant progress for listed real estate and are a strong step towards an investment regime where the asset class is treated fairly by regulators, as a long-term investment,” concludes Moerenhout.
For more information please visit www.epra.com
As Solvency II capital requirements change for insurance companies, what’s next?
In January 2016 Solvency II – a directive to codify and harmonise insurance law within the EU – became fully applicable to European insurers and reinsurers. The 2,000-page framework covers three main areas: capital requirements, risk management and supervisory rules.
The risk-based capital requirements in part oblige insurance companies to hold their own eligible funds in relation to their risk profiles to guarantee they have enough financial resources to withstand financial difficulties. In 2019, the legislation underwent a revision, with an important resultant opportunity for the European listed real estate sector.
Capital requirements for investments in real estate, or companies operating in the real estate sector, are calculated in the property and equity risk modules. Until recently, investments in listed real estate companies were treated as equity investments, leading to a capital charge of 39 per cent. In contrast, the risk charge for investments in direct property, which is based on the risk of a change in the level or the volatility of real estate market prices, was just 25 per cent.
The 2019 revision has created a new sub-category of “long-term investments in equities” that only requires a 22 per cent capital requirement, in contrast to the previous 39 per cent capital charge. The new Solvency II sub-category, Article 171a of the Solvency II-Delegated Regulation, became applicable in June 2019.
A study by Insurance Europe found that almost half (48 per cent) of insurers cited Solvency II capital requirements as the reason they have invested a sub-optimal amount in equities and listed real estate. This is strong evidence that the rules were ultimately inhibiting the best interests of end-investors, savers and pensioners.
Although there is every reason to treat listed real estate companies as long-term equity investments by reference to their asset base and correlation to other forms of real estate investment, the underlying conditions to apply this new sub-category have been considered by certain insurers as rather stringent.
For example, the sub-set of equity investments as well as the holding period of each equity investment within the sub-set must be clearly identified and assigned to the best estimate of a portfolio of insurance liabilities and as part of an overall (diversified) asset portfolio. This means that these clearly identifiable long-term equity investments are only a fraction of an asset portfolio, which is mapped to a portfolio of insurance contracts.
This allocation must be identified, managed and organised separately from the other activities of the insurance company, and cannot be used to cover losses arising from other activities of the undertaking. Although the assigned portfolio of assets (including the sub-set of equity) is not identified strictly as a ring-fenced fund, it does require documentation in a similar way to the Matching Adjustment regulation.
The European Commission’s proposal for insurance companies to hold listed real estate investments for a 12-year period was successfully lowered to five years.
Nevertheless, insurers must demonstrate their intention to hold the investment for such a period in their risk management, asset-liability management and investment policies, together with their ability to avoid forced sales of each equity investment within the sub-set for at least 10 years.
Insurance companies’ capital in Europe totals approximately €12 trillion. This is considerably more than the size of assets under management of European pension funds and is a significant pool of capital to have been unlocked. The next step is to enable and encourage insurers to take advantage of the new rules.
This is why the European Public Real Estate Association (EPRA) will focus its advocacy efforts on a general Solvency II review, which began this year and is foreseen to last until 2021, to further improve the terms and achieve an even more positive, common-sense investment framework that strengthens our industry.
Interested in knowing more about Solvency II and the listed real estate sector? Visit www.epra.com/public-affairs/policy-areas/financial-regulation.
Managing the risks of social media
Social media doesn’t really count does it? It’s just lots of D-rate celebs trying to get attention. People with nothing better to do sharing pictures of their lunch. Oh, and a certain global leader. It never has any real effect on anything, especially business.
If only that were true. In fact, social media is one of the big “digital risks” that businesses should (but often don’t) manage carefully.
What can go wrong?
Social media can cause damage across organisations. The most obvious risk is reputational damage caused by badly managed social media marketing or a poor customer that becomes exposed on social media. Linked to that is regulatory and compliance risk. Employees who post endorsements of products they are responsible for (known as astroturfing) may find that they have broken Fair Trading rules. Junior marketers who post images or claims on social media may unknowingly break Advertising Standards Authority guidelines. Marketers in regulated industries can easily fail to comply with required communications standards. Finance executives or directors who deliver hints about company performance via Twitter can offend against financial disclosure rules. Then there are HR risks around online bullying in offices where one employee posts disparaging “jokes” about another colleague on Facebook. Or perhaps where a senior employee makes inappropriate posts (again, often a “joke”) that leaves their employer with no choice other than to fire them. Perhaps though information leaks are the most important risks to manage. And these risks are extensive. “Loose tweets sink fleets”. That’s the US military’s social media campaign launched to warn military personnel and their families about inadvertently giving secret information away on social media. But it’s not just the military. Corporate secrets can be uncovered by people monitoring social media. Here are a few examples: • Asking for advice about new software/hardware could make it easier for hackers • Giving away office hierarchies and close colleagues can help social engineers gain the confidence of their victims • Publishing travel plans of senior executives can give hints about strategic plans • Personal information published on social media (pets names, football clubs, birthdays …) can help hackers guess passwords • Weak passwords on social media accounts can enable hackers to take over accounts and impersonate someone, say the PA of a senior executive.
Why do these things happen?
Why are there so many risks associated with social media? One problem is that it simply isn’t taken seriously. People think that anything you post is ephemeral (it isn’t) and doesn’t count legally (it does). This attitude has been reflected in research that indicates only 18 per cent of employees realise that social media posts can be the cause of corporate information leaks. The vast majority of employees can’t see the problem. Another problem is that is “social”. And people being social are not always at their most aware. Showing off to friends, too much alcohol or simply being in a place with people you trust completely all can play a part.
What can you do about it?
It is always going to be difficult to protect an organisation against cyber risks that originate with employees. That’s just as true of social media risks. But there are some protections you can put in place. The first thing is to define acceptable behaviour. This needs to be detailed and for instance cover off whether you allow people to mention your company or its clients or to say they are employees of your organisation on social media (you may choose to limit this to professional networks such as LinkedIn). You will also need a section defining the rights and responsibilities of people who officially post on your behalf. Once you have agreed on and codified acceptable behaviour, you need to circulate the rules to your staff, and to ensure they understand them. This means giving people face to face instruction and giving them the chance to ask you questions. You also need to explain the potential penalties for non-compliance. There are two things to remember when writing your policy document. It doesn’t require a change in employee contracts as it is simply a management instruction that they must follow. And it should be designed to change people’s behaviour rather than cover off all eventualities, so it should be short and written in simple language. (If it's longer than one page scrap it and start again.) You need to make sure, as you should do with all desirable behaviour around cyber security, that people are kept aware of the guidelines they should be following and, perhaps more importantly, that they are motivated to follow them. Finally, you need to monitor what people are doing on social media. This definitely does not mean spying on them, at home or at work. (It’s generally a bad idea for senior managers to be “friends” with juniors on social media). But it does mean keeping an eye open for problems. This could be encouraging people to report issues to you privately. Or it could involve monitoring social media for mentions of your company, senior executives or clients. There are no simple answers to the problems of social media risk. But if you are aware of what can go wrong and put simple steps in place to guard against dangers then it is unlikely that you will face significant damage. And after all social media can be a hugely beneficial channel for most organisations. It just needs to be used wisely.
Jeremy Swinfen Green is a consultant specialising in employee cyber-risks and a director of Mosoco Ltd. He is the author of The Weakest Link (Bloomsbury, 2016). This article was originally published in the IISP’s (now the Chartered Institute of Information Security, ciisec.org) Pulse magazine.
The new normal and the future of risk management
We cannot avoid talking about the pandemic currently affecting the global business environment, described as the “worst global health crisis in a generation” by Prime Minister Boris Johnson.
The Director General of the World Health Organisation, Dr Tedros Adhanom Ghebreyesus, recently called for an enterprise-wide approach to battling the pandemic, placing enterprise risk management at the centre of this crisis. We will see how our education, training and professional development has equipped us, and our organisations, to tackle this major risk.
The true impact on business will not be able to be gauged for some time, although we can see many businesses – from major airlines to local SMEs – already voicing their concerns about sustainability and requesting assistance and guidance from the government.
Public health measures in the UK are currently focusing on delay – slowing down the spread of the virus and reducing the numbers affected. The aim is to lower the peak impact and push it away from the winter season, initially by detecting and isolating early cases.
More severe measures have been put into place globally, for example reducing public gatherings, closing schools and restricting public transport, and such measures are beginning to have a significant global economic impact. As risk professionals we are skilled at framing and understanding these difficult policy choices.
Preparedness is key – effective risk management and business continuity plans now kicking into place will play a pivotal role. But some less risk-mature organisations will be in uncharted territory, which will sadly and inevitably lead to some businesses folding as we have already seen.
A core principle of risk management is to learn from experience and improve. There will be lessons from the experiences of dealing with the challenges of Covid-19, which will result in improved resilience and better risk management in the future.
With global supply chains being affected, the IRM recently launched its new Supply Chain Risk Management Certificate, in conjunction with the Supply Chain Risk Management Consortium. “Most businesses do not embrace or embark on a strategic risk journey until they experience a risk event,” says IRM founder Greg Schlegel. “If they do it’s all hands on deck 24/7, in an attempt to survive the event. If they do survive the event a lot of companies will go back to business as usual. Many companies do not survive a moderate-to-severe global risk event such as the Covid-19 virus.”
One of the challenges for risk managers will be to ensure there is a balanced, proportionate and common-sense approach. It is imperative that risk managers are qualified to deal with macro and micro issues confidently and competently. IRM is open for enrolments on all of our online distance-learning qualifications, suitable for anyone working in any business globally.
To view a recent webinar on risk management and the pandemic please click here.
The risks of carrying on regardless
Strategic risks stop businesses achieving their strategic goals – they are the big risks, usually coming from outside the business, that are difficult to anticipate and mitigate for.
Key among them is the risk to business continuity: the ability of the business to continue to deliver its goods or services when the fabric of the business – its people or assets – have been affected by a major external event.
The current coronavirus pandemic is clearly one such major event which has brought into sharp focus the business continuity planning of those businesses which are able to continue to operate during the lockdown period.
Business continuity plans are commonplace in most businesses, and usually involve the technical aspects of running a business, such as making sure that the IT systems and stored data are available and accessible remotely. There are, however, some more fundamental risks to business continuity which are often overlooked until the worst happens.
The biggest risk to any business facing an external threat to its operations is financial – the business simply running out of cash while its operations are disrupted. To mitigate this risk, business need sufficient reserves to weather the storm.
Many businesses (and most charities) in the UK live a hand-to-mouth existence with very low levels of cash reserves – usually no more than would be needed to wind down the company, pay off debts and pay redundancy costs, and in some cases not even that.
When something like a pandemic-triggered lockdown occurs, the immediate plan is for as many employees as possible to work from home. But even large multinational companies have found that this is not as simple as it sounds, with emergency investment required in additional hardware such as laptops and increased bandwidth and server capacity.
The first mitigation for business continuity risk is to ensure that there is a “rainy day” fund in your reserves to cover the additional costs the business will face in order to stay operational.
The second mitigation factor is insurance. Make sure you know exactly what is covered, though – many businesses have discovered that they are not insured for the effects of a global pandemic. It may also take time for insurers to pay out so you will need to go back to your cash reserves or make sure you have sufficient borrowing facilities such as an overdraft in place.
Thirdly, you will need to look at your corporate governance arrangements, particularly your articles of association, to ensure that you are legally able to hold board and shareholder meetings electronically. You may need to hold more frequent, shorter virtual board meetings and they will still need to be accurately minuted to record any decisions taken during the crisis period.
The fourth aspect of managing business continuity risk is communication – make sure your staff, suppliers and most importantly your customers are aware of any new arrangements which may apply, even if it is just to tell them that you are still open for business. The ideal is that any changes which are made to the business as a result of a major external event should appear seamless to the customer or end-user. Where this is not possible, communication is vital to minimise the impact to the business.
The increasing reliance on IT systems, software and digital data has meant that most business continuity plans are the responsibility of the IT department, and will in general have little or no visibility at board level – other than to clarify if there is a business continuity plan in place, and whether it has been tested recently.
In fact, business continuity is highly significant in terms of its impact on the delivery of the business strategy and should be considered in detail by the board on a regular basis.
As will be shown by the current crisis, those businesses which have been able to carry on by finding innovative solutions to the delivery of their goods or services are much more likely to be successful post-lockdown – demonstrating the value of looking seriously at the risks facing the business and, where possible, turning them into opportunities and sources of competitive advantage.
The rise of insurtech is bringing about the end of insurance as we know it
It may not be top of mind as we go about our daily lives, but we inarguably live in a world of accelerating change. New technologies such as cheap sensors which connect to the internet (aka the internet of things, or IoT for short), artificial intelligence, blockchain and its cousin distributed ledger technology, natural language processing (NLP), robotic process automation (RPA) and a host of others have become popular. These rapid technological developments have been enabled by the miniaturisation of chips, mobile devices and cloud computing and are used in a host of new and powerful yet intuitive applications. To cite one example, consider that the rapid adoption of global positioning satellite (GPS) technology in smartphones over the past decade has virtually replaced the need for paper maps – previously a centuries-old technology widely relied on for navigation.
The tradition-bound world of insurance is not immune from these forces. Insurance has a rich history and powerful longevity as an industry because of the societal good it provides. Insurance enables consumers to drive a car, buy a home and start a business – people buy insurance because they need to (and are often required to) in order to do something they really want to do.
Contrary to the perception of many, the insurance industry has historically been an early adopter of technology. Insurance companies first and foremost run on data and algorithms, and large mainframe computers were perfect for batch-processing policy issuance, renewals, billing and claims handling. However, this legacy technology makes it challenging for insurance agents, brokers and carriers to move quickly in the 21st century. Just as continued spending on a credit card without fully paying off the balance each month can lead to an unsustainable debt load over time, the failure to fully modernise systems and infrastructure over the past three to four decades has led to a buildup of “technical debt” that has now come due for much of the insurance industry.
If you were to design the perfect industry for our modern times, you could do worse than insurance. Largely based on data, insurance does not require large investments in physical capital or global supply chains subject to disruption from unexpected events such as the coronavirus. So it might be tempting to assume that insurance consumers should be benefitting greatly from information technology in a sector built upon data.
But as anyone that has gone through the process of purchasing and insurance and filing a claim, it can be a frustrating experience. Insurance is complex: it is a blend of product and service, both a financial instrument and a legal contract that is highly regulated and enforced by the rule of law. There are many long-standing and well-known problems in insurance that have yet to be adequately solved – until now.
The rise of these new technologies and focused innovation in the insurance industry has led to the rise of "insurtech". New start-ups and value propositions, fueled by an era of cheap capital, are created daily to address the "fatal flaws" of insurance. Insurance is too expensive and complicated; fraudsters constantly seek to game the system; it is a drain on liquidity for consumers who live paycheck to paycheck; it doesn’t cover all causes of loss or everything or everyone in society who needs it. While the industry press is abuzz with daily headlines announcing new breakthroughs and partnerships between traditional entities and insurtech startups, the reality is more complicated – and with so many moving pieces today, the industry is shifting rapidly.
Now more than ever, it is vital to bring together entrepreneurs, technologists and other insurance newcomers with industry veterans to provide a common framework of understanding how we can build the future of insurance together. By doing so, leaders will foster collaboration that spurs new innovation to bring insurance fully into the 21st century as an essential digital product that meets the evolving needs of today's consumers around the globe. The bestselling book The End Of Insurance As We Know It has sold thousands of copies around the globe and received top reviews from readers across the spectrum, from insurance professionals to those coming to the industry with fresh eyes. In bridging the gap between old and new, the book signals not only the end of insurance as we know it but heralds the future of insurance as it should be.
To find out more, please visit here for the UK version and here for the US version.
Please also see the companion website for the book here.
Nothing happens overnight in the insurance sector
Futurologists and insurance professionals focused on innovation used to love to talk about disruption and hunting black swans. Nowadays they predict a “new normal” arising from Covid-19 that fits with their hopes. Each of them is designing a future based on their own self-image.
I’ve dedicated my activity in the insurance sector to innovation, but I’ve never found myself aligned with the “disruption” buzzword or utopian scenario crowd. Instead, I’ve always concentrated on innovations driven by business needs. My focus has been insurance fundamentals, and the study of the expected impacts of insurtech solutions on these fundamentals.
I've been lucky enough to advise more than 100 companies in 20 different countries about insurance innovation over the last eight years. I've seen relevant changes happen in these insurance markets over this period. However, it’s clear that nothing happens overnight in this sector, so some futurologists’ predictions are basically wishful thinking. On the stages of 2019 international insurance conferences, I've enjoyed playing with the old predictions for 2020 regarding the numbers of telematic auto insurance policies, the weight of digital channels on insurance distribution, and the shrinkage of the auto insurance business due to autonomous cars.
A few months ago, I had the opportunity to receive an appraisal of some of my old advice about innovation in the health insurance business. I had a workshop with one of the members of the IoT Insurance Observatory, the think tank I founded to support European and North American insurers in their journey to innovate in different insurance business lines using IoT data. Within the team present at this meeting, there were two senior executives who, in 2012 and 2013, had leadership positions in organisations I advised on health insurance at that time.
While presenting different opportunities during this meeting to develop their health insurance business, it was extremely interesting to debate success stories and failures from international health insurance markets. I had the unique opportunity to review with the same people the advice I gave them seven years previously.
The vision that guides my thinking about IoT roles in health insurance innovation has matured, but the fundamentals are consistent with my old thoughts. However, the most interesting part was the deep discussion of each IoT-based use-case and the parallels with the old advice given seven years ago.
My old advice was articulated in seven areas of opportunity, and all of them were ambitious innovations at that time. After all these years, one of those areas is no longer on my shortlist, but the other six are clear opportunities to create value in core health insurance processes.
So what are these confirmed opportunities? Promotion of healthy behaviors (leveraging wearables and third-party data), and mobile-based remote consultation (through chat/video/call) with doctors are both approaches adopted by many health insurers in different international markets. The level of maturity of these use cases is pretty high, and there is clear evidence of which approaches are more effective. Three other confirmed areas of opportunity to adopt IoT are early detection, care optimisation, and medication adherence. These opportunities along the patient journey show a low level of maturity, but some international pioneers have integrated these aspects into their core processes as well as multiple active pilots carried out by others. Finally, the usage of IoT data for precise underwriting before the quotation seems to be the less mature of my old use-cases. We have seen some best practices around continuous underwriting, but fewer on the usage of IoT-based scores for first quotations.
What’s next for IoT in the health insurance sector? In that meeting, we discussed some other more innovative use-cases, which have been rationalised by the IoT Insurance Observatory but have not yet been explored by any insurers around the world. From my point of view, they will represent the next innovation frontier. One of these IoT-based use cases is the “insurance digital twin”. In a nutshell, it is a digital replica of the life of the customer that will allow exploitation of the full potential of available data on the different insurer functions, and potentially cross-business lines.
To find out more about the IoT Insurance Observatory research please visit www.iotinsobs.com
by Matteo Carbone
Covid-19 will drive big changes that will shape the future of insurance
By Ellen Carney, Principal Analyst, Forrester Research
Along with a new lexicon – “social distancing”, “hot zones” and “flattening the curve” – and the sudden relevance of acronyms such as PPE, Covid-19 will also change the insurance industry irrevocably over the coming decade. Here are six changes we’ll see over the coming decade:
• A bigger shift to contract – and robots – employees upend workers comp. The rise of the gig economy has changed how small businesses recruit, lowering demand for workers’ compensation insurance. Covid-19’s hit on employers will dramatically accelerate the shift from workers being employees to contractors, especially for small businesses. But it won’t be the only change in workforce composition wrought by the coronavirus. In industries such as construction and local logistics, tireless and immune robots and drones can lay bricks, hang drywall, and deliver groceries and take-out meals. They can work in close quarters without fear of sickness or overuse injury. And since they’re not on the payroll, these indefatigable workers don’t get factored into workers’ comp premiums.
• Digital services get put to the test – and many pass muster. Customers see technology as the path to make their lives easier, better and more efficient. And many insurers used the heydays of the last decade to invest in AI-powered and mobile digital services such as chatbots and mobile photo claiming features that answered questions fast and shifted claimants into adjustors. But because engagement with insurers was often rare, customers didn’t download or learn to use these services, often because they were clunky and frustrating. But in the new era of social distancing and call centre wait times wrought by Covid-19, consumers may have no alternative but to use mobile FNOL features or chatbots if they don’t want to sit on hold. To make the use of these helpful digital tech tools more sustaining, promote them in IVR hold messages, get your call centre reps to pitch them, and show them off as part of the sales process. When customers can successfully find and use them, they’ll return.
• Usage-based insurance booms as consumers question traditional coverage. Lockdowns and shelter-in-place policies have put a big dampener on miles driven. With out-of-work consumers worried about how they’ll pay rent, never mind insurance, they’ll be questioning why they should pay for car insurance when the vehicle is sitting idle in a parking spot. Worse, even in good times, one in eight American drivers were driving without insurance, putting insured drivers at risk. While some carriers are proactively pitching low-mileage plans, new work-from-home and big economic pressures will spur new consumer, insurer, and regulator thinking about usage- and mileage-based coverage.
• Survivorship/beneficiary management becomes part of the account opening and onboarding process. A welcome trend in the business of life insurance and even banks over the past five or so years has been a change in the tenor of messages regarding beneficiary and survivor services – and the death claim. Not that long ago, insurers treated this as an administrative exercise – fill out these forms, send us these docs. Now, financial services firms are injecting empathy, offering concierge services to help families and executors navigate the account closing and settlement processes, investing in new skills such as social work or medical backgrounds, and offering regular empathy training. And just as 9/11 spurred a drive to keep beneficiaries updated, Covid-19 could change the account-opening process, spurring frank conversation about getting things in order now, along the lines of Fabric's "Think Like A Parent" message.
• Household and business cashflow reshape insurance payment plans. Every year, the US Federal Reserve publishes its annual economic wellbeing report, and in 2019, it asserted that four in ten Americans could only cover a $400 emergency expense by carrying a balance on a credit card or borrowing from friends or family; 12 per cent said they couldn’t pay it by any means. That grim state of household cashflow just got a lot worse. Insurers are stepping up with premium deferrals and “contact us and we’ll work out a plan” messages. But household and business cash flows ebb and grow even in good times. We’ve been on the lookout for insurance payment plans that emulates Selective’s PaySync for years now, but have come up dry. But these economic headwinds might be just what drives an offering like this for personal lines, property and causality and individual life insurance.
