Technology offers real opportunity to slash insurance market costs

UK risk managers canvassed by CRE believe technology will help slash costs of the traditional insurance market, to make it more efficient for all and ultimately deliver benefits for end users. In particular, they suggest technology should be harnessed to improve the flow of underwriting data, finally deliver true evergreen policies and streamline a raft of other processes. Those taking part in our European Risk Frontiers survey also argue that market-wide initiatives and strong partnerships between everyone in the risk transfer chain would have huge upside. Paul Goulding, director of insurance at Heathrow Airport and past Airmic chair, said fintech offers a tremendous opportunity to cut the insurance market’s costs, particularly if it can help gather information used to underwrite risk. “Traditional questions about physical metrics may not make much difference to your risk profile. For personal insurances, what may be a better indicator is your lifestyle. So, there might be very different metrics and data that the insurance market could be using to underwrite risk. Avoiding the need to fill in forms and instead gathering information from other sources could make a real difference. If insurers can work that out, they could change the dynamic by putting a quote together based on two or three publicly-available sources, which would massively reduce costs,” said Mr Goulding. “This is not an area that necessarily affects corporate buyers yet, but could lead to big change further down the line,” he added. Joe Tunstall, risk analysis manager at Coca-Cola European Partners and fastTrack chair, agreed that digitalisation and better use of data offers an opportunity, but said insurers need to ensure that clients can keep pace. It is imperative insurers are more flexible in the data they request for underwriting purposes, he added. “Often, insurers request data insureds do not have. They need to be flexible with other information insureds can give to understand the risks. So, instead of taking what the insured has and molding it to their system, insurers need to be flexible and work with what the insured can give them. This makes life simple and we can all spend our time managing the risk,” said Mr Tunstall. Fellow UK risk manager, Tracey Skinner, director of insurance and risk financing at BT Group, said evergreen insurance policies would help deliver huge savings by slashing resource needed for the annual renewal cycle. “One thing that could really help all of us is evergreen policies but they aren’t forthcoming. Since the Insurance Act has been operational, it has extended my renewal cycle to ten months from about seven. This puts a strain on resource. What would really help us is to take a machine gun to the annual renewal cycle,” said Ms Skinner. Airmic’s technical director, Julia Graham, believes the use of technology and big data in insurance buying is starting to change. There are exciting times ahead during the next 12 to 24 months, Ms Graham enthused. “We haven’t seen anything yet,” she noted. Ms Graham noted that insurers are currently using technology to boost their own systems and process. This is welcomed but they should also focus on more innovative uses, she suggested. “I think the solution to cutting costs is technology. In various reports I have read, insurers are spending about 80% of technology effort on improving process. If you get your processes right then other things can follow, including on claims. Applying the impact of technology to improve the way you do current business is a great place for insurers to start as there are material gains to be made. That said, they have to innovate into new areas too. But it is a challenging time for insurers and brokers, who have enormous legacy data and legacy systems that were not created by design for today and [are] often complicated as the result of mergers,” argued Ms Graham. Lynda Lucas, director of international risk management and global corporate finance at Fujitsu, believes insurance market-wide initiatives would help deliver savings. “I can’t believe there aren’t more market-wide initiatives. For example, the way we transfer information securely to insurers is different for each insurer. I can’t help but think it would be more efficient for everybody if there was a London market system, for example, that everybody could adopt. There are many things that could be done as a market that would cut costs,” she told CRE. Ms Lucas also believes the market needs to change its approach to deliver broader services. This area remains untapped and offers opportunity to boost relevance and income, she suggested. “My personal view is the insurance market has got to change. There are a lot of services that insurance companies are capable of providing that would be of value. But for some reason they are not utilising this opportunity. I don’t think insurance companies realise the value they can offer clients. I think they need to focus on these services to help companies manage their risk with insurance as an add-on,” began Ms Lucas. “Think of boiler insurance. What you are really buying is an inspection service and a tiny bit of insurance should the boiler break down. Companies want that inspection service for a range of risks, with the insurance as an added bonus. With this model, the insurer would be very keen to make sure the risk is best managed. I think with the data insurers have, they can deliver much more value to clients. What we value are the loss-control services and upfront consultancy…Some are better than others at providing those value-added services,” she continued. For his part, George Ong, chief risk officer and head of corporate governance at Northern Ireland Water, flagged the importance of trusted partnership between risk managers, insurers and brokers. “Clarity regarding insurance and brokerage fees is important as we see a potential shift towards brokerage commissions rather than a fixed brokerage cost. The difficulty that this presents is that brokers are getting more involved in terms of services required by the client, at the risk of clients having less and less engagement with insurers and the insurance market. As much as we need and appreciate our brokers in helping us deliver an effective insurance programme, a strong relationship must be there between client, broker and insurer so that everyone is working together to manage risks on a collaborative ‘win-win’ basis,” said the chief risk officer. “Essentially, we are looking for effective partners to work together in managing our insurance risk exposures. While cost is an important factor, it cannot be at a cost of getting a sub-optimal partnership,” he concluded.

Technology offers real opportunity to slash insurance market costs

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