My 60 in 5 Perspective: How insurers can tame the risk of rapidly changing risks

A few days ago, my Accenture colleague Puneet Chattree wrote about his excitement to be at the National Insurance Conference of Canada (NICC) this year to discuss how the insurance industry is set to undergo major change in the next 5 years, and the role that GenAI will play (You can read about his perspective here: Link). As he stated, we foresee that 60% of the insurance sector is set to reinvent how it does business in the next 5 years.?

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This got me reflecting on another massive area of change that is personal to all insurers: risk. Our 2024 Accenture Risk Survey found that 9/10 insurance respondents find complex, interconnected risks are emerging at a more rapid pace than ever before (1). This likely comes as no surprise – the flash floods in Ontario in July and the wildfires in Jasper in August of this year combined to nearly $2B in insured damage according to the IBC (2). NatCat is not alone in creating outsized risk – with the influx of data moving to the cloud and advancements in GenAI, there are increased risks from cyber-attacks and fraud.??

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For Insurers, the impacts of these rapidly changing risks are real: As an increase in payouts puts upward pressure on losses, and the Canadian affordability crisis places downward pressure on premiums, profitability will be compressed. Add to that the investment risk and operational risk that insurers are also exposed to. In this environment, the Canadian insurers that will thrive will be those that have the digital and GenAI apparatus to move fast and predict risks in new ways, make the right strategic acquisition and partnerships with digital ecosystem players, and adopt a transformation mindset:?

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• Frontier risk models rely on access to new data to price more accurately. With emerging risks, insurers can no longer rely only on less sophisticated, historical-focused risk models but must move towards next-generation risk assessment tools, where GenAI will play a major role. However, these models rely on a strong and vast data foundation, and 40% of insurers today report either data availability or quality as key challenges to generating risk-related insights (3). Insurers must search for wider sources of quality data and couple them with smarter models to more accurately assess risks and venture into new offerings on previously uninsurable risks.?

• GenAI and other next-generation technologies can transform underwriting. As Puneet Chattree alluded to in his 60 in 5 post, we expect that 100% of insurance underwriting tasks will be augmented by GenAI. One way this will manifest is in enabling more accurate pricing through better predictive risk models by synthesizing more data, more effectively. For example, GenAI will be able to synthesize application submission packages with third party data (e.g., geospatial data) to provide underwriters with the full context of a property they are insuring, including both aggravating and mitigating risk factors.?

• Strategic acquisitions and partnerships can enhance your risk management capabilities. Despite North American Insurance M&A activity declining over Q1 2024 (4), Insurtechs maintained prominence in acquisitions, thanks to the transformative technologies that drive efficiencies across the value chain. Beyond underwriting and GenAI, several Insurtechs have developed capabilities in IoT and CAT risk data tracking, critical for insurance solutions like Parametric Insurance. As they develop their own digital capabilities, Insurers should continue to opportunistically look to Insurtechs to integrate capabilities into their tech stack.?

• A shift to a transformation mindset provides the speed required to respond to changing risks. With over 44% of insurers worried about a shortage of talent with the right skills to manage transformations in the presence of rapid change (5), insurers need to develop a transformation mindset that extends across the whole organization. In order to remain profitable in the face of emerging risks through leveraging new risk management technologies and ecosystem partnerships, transformation at speed is absolutely critical.?

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Looking ahead to NICC 2024, I am eager to speak with leaders from across the Insurance industry about how you plan on turning emerging risks into opportunity. If you will also be attending the conference, I invite you to begin thinking about how GenAI can help you turn emerging risks into strategic areas of growth and productivity.??

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This was my 60 in 5 perspective. Puneet Chattree , Phil Gibson , Elske van Erp , Eliano Rexho What do you think??

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Sources:?

1 Global Risk Study | Accenture (Insurance Data Segmentation)?

2 July flash floods in Toronto and southern Ontario caused over $940 million in insured damage (ibc.ca) & Jasper wildfire caused $880M in insured losses: Insurance Bureau of Canada | CBC News?

3 Accenture Analysis?

4 North American insurance broker M&A declines in Q1 2024 amid wider downturn | S&P Global Market Intelligence (spglobal.com)?

5 North American insurance broker M&A declines in Q1 2024 amid wider downturn | S&P Global Market Intelligence (spglobal.com)?