Four challenges shaping the future of corporate insurance
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The Covid-19 pandemic has given the insurance industry a chance to prove its worth, but has also demonstrated that the industry must become more efficient in order to meet the evolving needs of its clients.
The worst global pandemic in a century has presented all businesses, large and small, with unprecedented challenges. The Covid-19 pandemic pulled apart strong constructs that had been built over decades within just a few weeks. It revealed vulnerabilities and fragilities in sophisticated global supply chains. Employees were restricted to the home office or exposed to new social distancing and safety measures when at the workplace. Whilst companies had expected a pandemic event to enter the world stage at some point, hardly anyone was prepared. For the corporate insurance industry, whilst the pandemic has given the opportunity to support companies, through claims payments and advice to help navigate the impact of the crisis, it has also served to highlight several flaws.
However, where there are obstacles, there is the opportunity to find new solutions.
Whilst the hardening market has a positive effect for commercial insurers, not everything can be fixed by price increases. The industry must also become more efficient and address key customer pain points.
Many of these inefficiencies and customer pain points can be addressed through the proper application of digitisation. At Swiss Re Corporate Solutions, we believe that in order for the commercial insurance industry to become more efficient, insurers’ systems and processes must become both digital and integrated.
The industry has already made some positive first steps in this direction. According to Accenture, 60% of insurers are already using digital technologies for tasks such as improving customer service.
There is an urgent need for systematic data collection and use for a truly end-to-end view of the entire insurance value chain. Such data collection and sharing will enable the industry to rise to the challenge of providing higher quality products, as well enabling insurers to confidently approach new areas of risk as corporates embrace the use of technology within their own businesses such as artificial intelligence.
Addressing legacy systems and increasing transparency
One of the biggest challenges facing the insurance industry is outdated legacy systems or missing technology, which needs to be improved or developed. An example of this is in the area of international insurance programs. At Swiss Re Corporate Solutions we have developed a state-of-the-art, cloud-based international program administration (IPA) platform that is being adopted by our own clients as well as industry partners, such as Brokerslink, LocalTapiola and more recently Württembergische Versicherung.
As a relative newcomer, we had no existing legacy IT-systems from which we had to build on. We now have a platform, that was developed in consultation with customers and brokers, that can be customised and used to address a number of industry inefficiencies. For example, we can automatically issue local property policies in accordance with local legal and tax requirements, whilst also ensuring the greatest possible alignment with the master policy through our One Form solution.
Another major challenge faced by the industry is that underwriting is no longer up to date and a lack of transparency in pricing has evolved.
Our data platform enables us to perform analyses on a large scale by compiling our data into a central pool. By centralising the data, we are able to contextualise it better than before.
Our underwriting team also receives continuous feedback from our claims department, actuarial reserving, and actuarial costing teams. This approach ensures the constant exchange of information, enabling us to identify pricing and exposure trends very quickly. These are valuable insights that we can share with risk managers to help them mitigate losses and build business resilience for the short and long-term.
Developing innovative products that meet customer's evolving exposures
Another major challenge faced by the industry is the continued development of traditional insurance products, which no longer meet the needs of our customers alone.
New business models must be developed, not just as lone fighters, but in cooperation with partners. In the past, insurance companies have been very reliant on the performance of capital investments. Ongoing low interest rate levels resulting from the pandemic are likely to be seen across the world, meaning that insurance companies will no longer be able to secure the necessary net return on investment income to remain profitable.
Insurers must now concentrate fully on underwriting results like never before.
This increases the pressure on insurers to not only conduct their underwriting in a clean and technically sustainable manner, but to be innovative and develop new business segments.
The findings of the Sigma study Data Driven Insurance published in January last year by the Swiss Re Institute show that this can seem like an expensive investment for insurers. However, according to the study, early-mover strategies for new technologies are usually an expensive investment in the medium term, but in the long-term they benefit from the knowledge and experience gained over the years and are able to gain a real advantage.
At Swiss Re Corporate Solutions we are convinced that you cannot win on your own. That is why we rely on strong partnerships when it comes to new business areas.
More recently, for example, we have partnered with Hitachi to work on a pilot project with a manufacturer in Europe. Here, Hitachi provides the predictive maintenance IoT platform on the manufacturer's machine, and Swiss Re provides an integrated parametric warranty insurance solution. Now the manufacturer will have reassurance that if there is a wrong prognostic that results in costly downtime there will be an automated claims pay-out in real-time. This new insurance solution will undoubtedly help manufacturers to have the extra confidence they need to change their maintenance programmes and adopt a more digital, data-driven approach and new Equipment as a Service (EaaS) model. Through such partnerships, not only can we access a new risk pool, but we can also draw a lot of knowledge that we can make use of for our customers and partners. The chance to use this wealth of information to develop completely new insurance fields and products, to embrace new markets is exciting.
By delving deep into the core business processes of our partner companies, they give us access to their data which in turn helps us to better understand and quantify the risks and exposures. It is no longer just a question of classic risk transfer, new markets will emerge in the area of digitalisation that will also require risk insights and partnerships to help manage the risks.
Supporting the move to more holistic risk management
The Covid-19 pandemic and hardening market have accelerated the trend for corporates wanting to take control of their risks and exposures, and to own more of the risk again.
As such, risk managers are looking for more holistic risk management solutions and services from their commercial insurance partners.
In the past, risk managers have been reliant on using the past as a yardstick for the future. However, this approach is becoming less and less suitable.
For example, take natural catastrophe events. The Swiss Re Institute’s annual Sigma studies in the NatCat space shows that natural catastrophes caused by climate change will likely occur in the future with a higher probability and greater force than can be predicted from historical observations. Here, new types of coverages, such as parametric solutions (which pay upon the occurrence of a triggering event rather than having to claim a specific insured property loss) will rise in prominence and beyond just property related catastrophe coverages.
Risks are also by no means just physical assets, for which you can look to past data for similar industries and corporates. Today intangible assets such as reputation, intellectual property and supply chains account for 80 to 90% of the value of S&P 500 companies. These kinds of risks require a much more customer-specific and data-driven approach to underwriting.
Algorithms are also intangible assets which for risk engineers means that they are increasingly also data engineers responsible for the quantification and contextualisation of digital data. Our risk engineers can support risk managers in quantifying and prioritising the risk potentials as well as in "what if" calculations, thus enabling them to make targeted and optimised investments in loss prevention and risk management.
Sharing hard to gather data to build resilience
The pandemic has proven to be the ultimate unpredictable market event for many corporate risk managers, with many corporates facing multiple risks they are unlikely to have predicted.
Opportunities for digitalisation have proved key for many of the challenges faced by risk managers and we have found that digital innovations have also proved invaluable to the corporate insurance market.
The pandemic has forced us all to rethink and become more digital because it is now about more than just insurance assets or their failure. The pandemic has opened up new questions, such as how risks across an entire supply chain can be hedged and how can, for example, AI risks be mitigated?
During the first round of Covid-19 lockdowns, we begun to develop an integrated data platform, called the Risk Resilience Center, to help customers take a more holistic approach to risk management, starting with the risks posed by the pandemic.
The Risk Resilience Center combines a rich set of proprietary global data spanning COVID-19, mobility, policy, macroeconomics and financial markets data from over 1,000 sources, updated automatically multiple times per hour, to make new analyses possible. For example, the platform's operational tools can be used to provide rich, actionable insights that can help to solve problems as diverse as mortality and morbidity assumption setting; return-to-work operations; and economic recovery analysis.
The platform enables customers and partners to securely upload their own data, such as locations of premises. This can be layered against other data sources on the platform and overlaid with predictive models and scenario planning. This enables customers to assess likely risks in near real-time across the supply chain and react to mitigate them before they happen and potentially disrupt operations.
Our scope is growing to include analytics for partners to plan for, and manage, risks and opportunities like vaccines distribution; climate change; natural catastrophes; economic recovery; sustainability; and more.
Technology is changing our industry and our customers' industries.
As leaders in innovation and ideas, it is part of our job to be curious, to go out to explore new risks and advance corporate insurance together with our customers to help solve their problems. Often it is necessary to identify the problems first, to articulate what exactly is the problem, before they can be solved.
At Swiss Re Corporate Solutions this is exactly what we will continue to do.