Technology is on everyone’s mind. Whether it’s using big data, AI or tackling the world of cybersecurity, technology tops the list of business concerns today.
For the insurance industry, technology and how data is used to improve underwriting have been the biggest drivers of change. That’s according to panelists at the recent PLUS conference held in San Diego in November who discussed recent developments in the insurance industry and what those changes say about what’s coming in the post-COVID era. But it also comes down to education, communication and hiring the right talent.
Technology and Data
Technology and data have driven change throughout the industry, said Michael D. Price, chief executive officer, North America, AIG, one of the panelists speaking on the “Industry Leaders: Evolution of the Insurance Market” panel at the recent conference.
“When we were underwriters in the early and the mid-1990s you had your HP calculator and a piece of loose-leaf paper and you did your financial analysis,” said Price. “Technology in the beginning was a way to ease administrative burdens, maybe having data sources that would pipe in financial analysis and whatnot.”
Then, over the course of the mid-2000s, technology took over as the industry became model-dependent, he said. “I think too many consultants got the room and started to maybe ‘widget-ize’ underwriting.” That hasn’t always been a good thing when it comes to professional lines.
“This line of business, especially directors and officers, but all of professional liability has a lot of judgment and horizon issues embedded into the analysis,” Price said. “So, when I think about what has changed for the better and also for the worst, it has been data and technology.”
Today, there is a renewed focus on shifting back to the importance of people and talent, Price said.
“Now, I think where we are today [at least for AIG] is we’re trying to get back a little bit to the basics of the role of an underwriter, balancing the qualitative and the quantitative and really reinvesting in people and talent,” according to Price.
Underwriters, with roughly 48 percent serving as new underwriters, are not replaceable widgets, Price said. “You are people who manufacture decisions, and that is what we’re going to train you to do and then overlay that with data and analysis.”
While the industry’s reliance on technology has had its benefits and challenges, it also has helped to create a much more-informed and faster-paced market overall, said John J. Lupica, president of North America Insurance for Chubb.
“The information that we have at our fingertips today is exceptional, and that’s why you see the market moving much quicker, because it’s an informed market,” he said. “You are better informed with datasets in front of you.” There are fewer questions when using data, he said. “This is a math business, and big data wins as long as you know how to interpret the data and where you can get it from.”
Evolving Role of Brokers
The role of the broker also has evolved into a partnership with clients and again technology has aided in that change, said Christine A. Williams, global specialty product leader for Commercial Risk Solutions at Aon. Clients want to be on top of emerging risks, data analytics, plaintiff costs and risk modeling, she said. “We’re spending a lot of time on ESG and what it means to them,” she added.
Clients often want to partner in finding solutions that will help them mitigate risk, said Michelle A. Sartain, managing director, regional head of Marsh Specialty, U.S./Canada.
“We’re helping them find the information they can’t find in other places,” she said.
Sartain said the role of technology will continue to grow in different ways in the future. She predicts heightened focus on AI-enabled technologies. That is critical to younger talent entering the industry, she said.
“I imagine some of the younger colleagues out there can’t wait until we get that act together because coming into this business doesn’t necessarily feel like everything else that they’ve experienced up to this point,” she said.
One notable challenge facing the U.S. insurance industry that is not tech-related will be the growing trend of litigation funding.
“I will say I’m a little bit concerned about litigation,” she added. “I think that will fundamentally change our business, [and] hopefully we won’t go the way of Australia. I understand that wasn’t very pleasant—not only for insurers but also for clients.”
She also agreed there will be more time spent on ESG-related issues facing clients going forward as well. “But I think we’re going to have to start separating out the E, the S and the G,” she said, because each industry is impacted differently by those three elements.
Another major contributor set to change the U.S. insurance industry will be the influx of alternative capital entering the sector.
“We’ve seen different capital flow into this market over the decades—that’s not a new dynamic,” said Jeffrey P. Klenk, president of bond and specialty insurance, Travelers. But there are newer forms of capital that have different return thresholds than more traditional capital, he added.
Sartain said the amount of capital investment hitting the captive market has grown exponentially.
“That’s going to have an impact on the risks that go into the market,” Sartain said. But will those alternative markets remain viable? she asked. “From our perspective, ‘Are they going to be there to pay claims?’ There’s been a lot of new capital that’s come in, and as the market stabilizes across the disciplines, how is it sustainable to stay in on the retail side of the house?”
Cyber risk is another area businesses must continue to address in the future. It is an “inevitable” risk that “they’re going to get hacked,” Klenk said. “But less than 50 percent are committed to doing something about it,” he said. “So, ‘I know it’s coming but I’m not really prepared to do something about it.'”
For clients, cyber protection should be focused on education. Clients may think they are covered, but getting coverage and sitting on it for years will not protect against ever-evolving cyber threats, he said.
The insurance industry is learning more about how to prevent and recover from cyber attacks every day. By aggregating information and analyzing datasets, the industry can better identify potential risks and prevent loss in the future, the experts say.
“This is clearly an industry that needs to work on this notion of predict and prevent as opposed to repair and replace,” said Lupica. “It is one of the few coverages—I can only think of two, there may be others out there—where you have somebody out there trying to create a loss.”
Panelists concurred that the lessons learned from nimble policies required for cyber are setting a pattern for improving and evolving other types of coverage.
Attracting and Retaining Talent
Attracting and retaining quality talent will continue to be one of the most important issues for the industry to address going forward, the panelists said. “None of this happens without good people,” Klenk said. “You need them.”
Talent issues are top of mind for industry leaders. “I would say [talent] is probably the one thing as a leadership team that we spend the most time on,” said Sartain. “We want to make sure that we’re cultivating an environment again where people can feel like they belong, they can bring their authentic selves to the organization. They can be intellectually challenged, right?”
Getting the top talent will mean changing the narrative and looking for talent in unexpected places, she added.
“And I do think that we undersell ourselves as an industry sometimes when we think of ourselves as just the insurance industry,” she said. “I mean, I like to say to people, ‘If you are interested in anything—I don’t care if it’s fine art, real estate… It doesn’t matter. You can find a place in the insurance industry where you can be stimulated, have a great career and be surrounded by great people.'”
Panelists agreed it will take going the extra mile not only to provide the flexibility and benefits employees now prioritize but to ensure that there is opportunity for career development and growth through training and mentorship.
The panel discussion included a wide range of other topics, as well. See the whole panel discussion at https://player.vimeo.com/video/772243064.