Better late than never, they say, but sometimes being late is a problem. When it comes to the adoption of data, insurers risk being left behind.
The problems plaguing the sector when it comes to transformative technology are reflected in the ongoing struggle to deliver Lloyd’s Blueprint Two strategy. The insurance market’s digitisation strategy to make it “better, faster, and cheaper” has been beset with delays and more delays.
August saw a change at the top of Velonetic, previously known as London Market Joint Ventures, which is working with Lloyd’s to deliver the strategy. Bob James, formerly COO at Lloyd’s, was named the new CEO at Velonetic. The appointment came with the publication of a new timetable for testing the first phase of the project – although James has previously said he’d prefer criticism of the project to rolling out a flawed solution.
The first phase aims to process premiums digitally and deliver faster claim payments. The second will see the launch of a core data record (CDR), providing a standard for capturing critical transactional data, and bring more automation. It has been far from plain sailing, though. As James told journalists, the history of attempts to digitise the marketplace is a “tattered tale.”
Insurance technology consultant Jeff Ward has previously and entertainingly detailed some of that tale. As he points out, even if the current ambitions for the CDR are realised (and we’re still some way off), there’s much more to be done.
“Core Data is a good start but if the market truly wants to be digital, they’ll need an awful lot more data surrounding the core to cover all classes of business and their various means of placement,” he wrote in 2022.
“And they’ll need more than just a simple list of data elements too — data needs to be logically and hierarchically organised in a model to be of any material value, and it needs comprehensive rules for governance, validation and exchange. Plenty to do.”
That remains true today. Crucially, as Ward pointed out, it isn’t solely or even perhaps primarily a challenge for Lloyd’s or of defining the CDR. The industry needs to capture that data.
Show me the money
As Ward argues, in the retail world with price comparison sites, customers have been happy to supply and key in data that would otherwise cost insurance companies to collect. That’s because there’s a “modernisation dividend” in which they share: Part of the saving for insurers is reflected in lower premiums for customers.
In the commercial insurance world, it’s not so clear that the same incentives apply. And incentives are central to this discussion. Issues like the bordereaux systems in the delegated underwriting authority business and schedules of values in the open market are complex and expensive.
“So who pays?” Ward writes. “And, not entirely unrelated to that, who will share in the modernisation dividend if it is successful?”
It has long been recognised that the insurance sector lags some others in its adoption of digital technologies. That continues today, with the industry trailing others like banking, retail, industrial goods and healthcare in the adoption of generative AI, for example. There are various reasons for that reluctance, some of them quite reasonable. But crucially, it can be overcome.
We saw this with the PPL electronic placing platform, built on Ebix Europe’s pioneering Lime Street platform. Again, Ward provides among the most interesting reviews of the history. He notes that, following its launch in 2016, adoption grew relatively slowly, and enthusiasm was not universal. That changed with the pandemic.
In 2020, necessity drove widespread and enthusiastic adoption of Ebix’s placing system, and it’s notable that electronic placement is now ‘business as usual’ and the benefits are recognised. No one is going back – which is why Ward argues we no longer need a centrally-driven solution and should let the market choose from the array of platforms available (Ebix Europe’s new PlacingHub among them).
NextGen is the latest iteration of PPL, and based on an entirely different system, but is yet to match the acclaim of the Ebix offering, with critics citing poor user experience and highlighting the £70m costs of its replacement as poor value for money.
The critical point is that the insurance market, whether it still trails others or not, has moved in the last decade to increasingly welcome technology as an enabler – but, crucially, when it can see a clear return on investment (ROI).
Technology drivers
That will be key to driving increasing use of technology not just to streamline insurers’ processes and cut costs but for their core function: Managing risk.
As the recent FT series makes clear, the industry faces an acute challenge from climate change. Losses from natural catastrophes have now topped $100bn for four years running, and the industry is still trying to come to grips with the rising incidence and cost of secondary perils, the traditionally smaller, more manageable risks that are accounting for a bigger and bigger proportion of claims. Aon’s list of the top ten global insured losses in 2023 included just one primary peril event.
Some of the solution to this will be just to reflect the rising risk in pricing. Practical options, like not building on flood plains, are also likely to play a part if weather risks are to remain insurable. But technology driven solutions are also likely to play a role – whether in the continuing evolution of risk models and the use of AI by established players and startups or through new parametric solutions.
Likewise, technology itself is bringing challenges for coverage. The rise of the cyber insurance market, reaching $14 billion globally in 2023 and estimated by Munich Re to hit $29bn by 2027, is a boon to the sector.
However, it also brings the prospect of new potentially uninsurable risks. As the reinsurer’s chief underwriter for cyber said: “The risks presented by digitisation pose a challenge to society at large. The insurance industry plays its part in mitigating those risks. However, the most severe systemic cyber risks, such as the failure of critical infrastructure or damage from cyber warfare, cannot be borne by the private sector.”
Insurers also face their own cyber risk. In a data-rich society, they face significant challenges protecting themselves and their clients – as we discussed last month. The return on investment in that space may not be apparent until the costs of the worst happening become clear.
Turning to a trusted advisor
In trying to establish the ROI of these different uses of technology and – crucially – how to prioritise investment, it helps to work with technology partners that understand the industry.
Intersys has always been close to the industry, with over thirty years working in the insurance sector. Our founder, Matthew Geyman, was an IT manager for an underwriting firm. We’re now, with a new office in Leadenhall Market, physically close, too.
With an in-depth understanding of the industry, we’re able to help insurers, MGAs, brokers and others in the industry not just manage the challenges of digital transformation but evaluate and seize the opportunities.
If the insurance industry has lagged in its adoption of technology, it’s catching up – and can learn from the experience of others. We’ve certainly seen what’s worked, and what hasn’t in the insurance industry and beyond. There are plenty of opportunities to put that knowledge to use.