Achieving change and transformation in the insurance industry

Balkerne’s research of the insurance industry has revealed that historically, until the last few years, the insurance industry has seen little innovation, with an overwhelming focus on pure risk transfer. Technology and accompanying socio-economic change have brought increasing inducements for the pursuit and implementation of transformational change. It is evident that the insurance industry is increasingly evolving through a combination of changes to technologies, processes and people. However, the insurance value chain is both complex and fragmented, with many challenges to be overcome to keep up with market requirements, expectations and opportunities.??

Silvi Wompa Sinclair has had an international executive career in insurance over the past two decades, with senior roles in Life & Pensions (Old Mutual), Property and Casualty (If), Broking (Willis Towers Watson) and the Lloyd’s Market (Hiscox). Silvi has also co-founded a FinTech / InsurTech Startup on mitigating price risk in raw materials and is currently based in Zurich, as the Head Portfolio Underwriting for the Swiss Re Institute. Balkerne discussed insurance industry innovation and change with Silvi and heard her thoughts on opportunities for boundaries to be changed and lasting transformations achieved.

Balkerne: Which actions do you think can contribute most to improving the annual underwriting result?

Silvi: The industry knows that simply putting premiums up will not always work, especially with the amount of risk-willing capital currently available. I think insurers will need to be more selective about which risk pools they want to play in, to generate the necessary profits. To do that, I expect there to be a move to far greater structured analysis of historical, current and future data. I suggest that the most successful entities will be those who become skilled at identifying, ingesting and curating both internal and external data sets, as well as the integration of key market trends. Entities which acknowledge that understanding data is a constant, evolving process, driven by clear use cases will perform the best. Furthermore, losses need to be better understood and opportunities to reduce the severity and frequency of future losses identified and pursued.?

Balkerne: What do you consider to be the most significant challenges facing Insurance Brokers over the next five years?

Silvi: The broker’s position in the industry is going to be subject to a lot of change. Their role as a middleman and the renumeration they receive for distribution is increasingly under scrutiny. Companies which can create data repositories with common formats and standards will transform the role of the broker. The smaller, commoditized, regional based brokers, unless highly specialized, will gradually disappear, either through the process of continued mergers and acquisitions or simply by commercial decline. However, at the same time, brokers who can offer specialist risk management services, such as the conduct of surveys, the procurement of specific risk controls or the provision of technology, will see demand for these services grow.

Balkerne: The consequences of the pandemic have resulted in a notable amount of insurance industry literature refer to the ‘need for the insurance industry to rebuild trust.’ What do you think have been the biggest issues for the industry in achieving customer trust?

Silvi: The industry has struggled as a whole for many years on how to close the so-called ‘protection gap’ which I think undermines customer trust. By this, I mean if one considers the major global risks identified by the World Economic Forum (WEF) on an annual basis, the insurance industry is not yet able to sufficiently understand most of these risks to provide coverage. Therefore, there is a protection gap which can bring substantial consequences when a risk event occurs. For example, loss of IP or reputation are usually at the top of most CEO’s minds, yet a risk that the insurance industry at large struggles to help with. I think the industry could put more effort in gaining third party data and other perspectives on these risks to try to close that protection gap and generate greater trust by offering insurance that solves their customers’ most pressing problems.

Balkerne: Startups often comment that trying to engage with Insurers and Insurance Brokers is very challenging. How do you think that Insurers and Insurance Brokers should best organise engagement with Startups?

Silvi: Very simply, where there is a will there is a way. But saying that you want change is very different from living with it. I have seen several Insurers and Brokers assemble very competent groups of developers, technology innovators and data analysts to interact with startups but then struggled to change their underlying business in a meaningful way. We must also remember that the current senior leadership of Insurers and Brokers rarely have a data or technology background. Furthermore, the general business model of the industry is tilted towards risk aversion, contrary to most other business models. Historically, saying ‘Yes’ has brought more career risk than saying ‘No.’ I think the InsurTech sector will only grow, but with greater specialization within the different aspects of the insurance value proposition. I also think that some insurance incumbents will become very purposeful and successful at integrating startups, as part of a grand vision to deliver very substantial internal change.