Data Dilemmas: Challenges and Opportunities for Commercial Insurers

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.

Find out about Intersys’ specialist IT and cyber security services for the (re)insurance sector. We help brokers, (re)insurers, MGAs, insurtech and adjacent organisations deliver IT infrastructure that protects critical assets, maintains business continuity and helps teams work smarter.

IT Support for Insurance Companies: Digital Transformation from a Specialist Provider

As underwriters, managing general agents and brokers embrace technology to enhance their business, it’s in with the new, but not out with the old. Experience counts when it comes to specialist IT support for insurance companies.

For insurers, cyber is a growth business. According to the reinsurance giant Swiss Re, the global cyber insurance market tripled in volume in the five years to 2023, with gross direct premiums of $13billion in the previous year. By next year, it is expected to grow to $23 billion. Consultant PWC has described it as ‘one of the few areas of growth and innovation’ in the market.

It is, however, still small beer set against the risk, as Swiss Re’s report recognises. Economic losses from cyber crime are estimated at $8 trillion in 2023, with forecasts they will reach $10.5trn by 2025. Over the last decade, the ten worst data breaches alone exposed more than 1 billion people. Malware attacks hit 5.5 billion in 2022. Ransomware remains a massive challenge.

All in it together: Cyber risks to insurers

For insurers, that’s an opportunity but also a challenge. First, as Aon’s report on US market trends earlier this year noted, systemic risk – the threat of a single event or vulnerability causing widespread losses, remains a top concern. Second, the rising risks driving the cyber insurance market’s growth also threaten insurers’ own businesses. That’s been graphically illustrated this year:

At the end of March, Prudential Insurance Company of America announced that hackers had stolen the information of over 36,000 people in an attack for which ransomware gang AlphV claimed credit. The attack came less than a year after a breach the previous May, exposing 320,000 customers.
In July, Japan’s Tokio Marine reported a potential leak of 63,200 policyholders’ personal information.
Fidelity Investments Life Insurance in March said that data of more than 28,000 customers was accessed through a hack of its third-party service provider Infosys McCamish Systems.

Another PWC survey last year of the top ‘banana skins’ facing insurance businesses themselves found cyber topping the list of concerns. As the report noted, ‘The challenge for insurers is that as their businesses become more complex – with new hardware, cloud computing and third-party services in longer supply chains – cyber vulnerabilities unfortunately increase.

‘Criminals are becoming more adept at monetising their breaches, and with the prospect of sensitive customer data leaks, it seems that for the insurance sector the ability to be resilient to cyber-attacks is a core requirement, with cyber security being less a ‘bolt on’ and rather something to be designed into the business and IT architecture.’

A range of risks

In fact, insurers face the whole gamut of risks faced by their insureds, not just cyber attacks, ransomware and data breaches, but also downtime and regulatory risks. Last year, Sweden’s Authority for Privacy Protection fined insurer Trygg-Hansa $3 million for exposing data from hundreds of thousands of customers on its online portal.

In many cases, vulnerabilities reflect wider IT challenges of ageing systems, disparate technologies, increasing costs and skills shortages. And it’s not just underwriters. It’s managing general agents, brokers, and the whole industry involved in protecting against cyber risks.

The coverage they facilitate and advice many provide offer increasingly vital support for companies and organisations across the economy to conduct their business with confidence. But who’s supporting the industry’s IT?

Who’s protecting the protectors?

A particular challenge

Solutions do exist, but challenges remain.

The cloud, for instance, offers a compelling alternative to the difficulties of managing and maintaining in-house technology infrastructure. Moreover, as McKinsey & Company suggests, the benefits of the cloud lie in two areas: ‘Rejuvenation’, using the cloud to lower costs, for both IT and core operations; and innovation, harnessing the cloud to accelerate or develop new revenue streams.

The cloud can accelerate the time to market for new products or services, reduce the cost to serve, enable economies of scale and provide access to advanced capabilities that are impractical, expensive or impossible to host on-site. Insurers in McKinsey’s survey mentioned machine learning, natural language processing and harnessing the Internet of Things among the cloud-enabled capabilities most relevant to their business.

However, to access such features, insurers, MGAs and brokers need support to migrate systems, and modernise and adapt their infrastructure to support what is not simply new technology but a new way of working. That migration and end solution must also account for the industry’s particular needs: Robust cybersecurity to protect sensitive data; compliance with a rigid regulatory environment; and the need to work with a range of existing systems, old and new, whether to replace or update them.

Crucially, it requires an understanding of the industry and how underwriters, MGAs, brokers and others work, the challenges they face, and their businesses’ needs.

Why Intersys? Decades of experience in insurance

Intersys has almost three decades of experience working with the insurance sector. Our managing director, Matthew Geyman, started his career as a computer manager for an underwriting firm. From the days of mainframes to sophisticated placing software and other technology today, he’s worked closely with the industry to meet its challenges of streamlining processes, automating activities, protecting data and ensuring compliance.

He’s supported by a wider team with significant experience in the industry, too. Tony Healey, our senior analyst and developer, also started out working in the London insurance market. Malcolm Alexander, who headed an IT services company that pioneered electronic trading in the London insurance market, is a non-executive director. Catherine Geyman, Director of Risk, has a deep insurance and consulting background, with particular focus on Captives and reinsurers.

Today we provide IT infrastructure, security, outsourced solutions and cloud infrastructure design and support for critical firms within the London Insurance Market. We support placing platforms, underwriting, claims management and exposure management systems. We also provide outsourced IT for fintech firms that are critical suppliers to large insurers.

Our newest office (opening summer 2024) is in Leadenhall, the heartland of the insurance market. Our experience is deep within it. We understand the business, the regulations – both ICO and FCA – and our security-first approach means we are ISO27001 certified. We’re experts in our fields, both technology and insurance.

Those are two worlds that are rapidly coming together. Technology is ready to transform the industry, across underwriting, placement, claims and much else. But those looking to securely embrace new ways of working need partners familiar with the old. Because if you want help to get where you’re going, it helps to have someone who understands where you’re starting from.

Find out about Intersys’ specialist cyber-resilient IT services for the (re)insurance sector. We help brokers, (re)insurers, MGAs and adjacent organisations deliver IT infrastructure that protects critical assets, maintains business continuity and helps teams work smarter.