When it comes to product innovation, insurers have a reputation for being innately risk averse. But could making calculated bets on product innovation capture clients’ imaginations and tap hidden budgets?
Safe, trusted and well-received policies always appeal to underwriters. After all, why take unnecessary risks on unproven products?
And rather than parsing commercial underwriting prospects according to risk profile and insurability, industry insiders say buccaneering insurance firms must create original products first, then test them on an unsuspecting market.
Big data is, arguably, the most exciting digital-era innovation to affect the worldwide insurance industry, creating or extracting new value from insights.
There’s significant investment behind the drive to innovate, too. Gartner thinks global IT spending within the insurance market reached $222 billion in 2020.
But despite the tantalising prospects of tech-driven progress, legacy system complexity combined with corporate inertia have conspired to its slow traction.
Insuring the uninsurable
Simon McGinn, Allianz UK general manager for commercial and personal, urges digital development as crucial to enabling greater agility in key areas, such as the reorganisation of assets for specific channels and opportunities.
“The critical component is in the data space where valuable historic and new data sources can be better aggregated to enable this,” he says. “The enhanced ability to interrogate data in a way that can provide understanding of risk pools or customer segments means we are able to meet differing customer needs with increased flexibility and precision.”
David Broughton, head of insurable risk at Centrica, the international energy services company, thinks uninsured risks are a critical oversight for the insurance industry. He chairs a working group on the subject, convened by Russell, the risk management software and services firm.
Broughton claims intangible assets have overtaken the value of tangible assets in the corporate world, while large corporations are facing climate change and a variety of other risks to their future.
“At the same time, the insurance market has, on the whole, due to past issues and increased regulatory pressure, reduced their risk appetite for intangible assets, and have concentrated more on property and therefore natural perils, also personal lines, motor and small and medium-sized enterprises,” he says.
This has left large corporate clients exposed and feeling the insurance industry is failing to respond to the increasing complexity of risk they wish to mitigate, Broughton adds.
Sins of omission
The omission is echoed by David Heath, chair of the Institute and Faculty of Actuaries (IFoA) Policy and Public Affairs Board. IFoA members have a statutory role to provide actuarial opinions for managing agents at Lloyd’s of London, the world’s foremost insurance market.
Heath cites instances where the use of advanced tech, for example wearable technology and genetic testing, could reduce the risk pool and leave those at the margins without adequate protection or in some cases no protection at all.
Astoundingly, according to Russell research, only 20 per cent of risk that concerns the corporate C-suite is currently insured. “Much of the balance is increasingly intangible and associated with the extended enterprise as a result of interconnectivity and digitalisation. Siloed insurance products do not match ways corporates operate their businesses,” says Russell Group managing director Suki Basi.
To address this, risk transfer needs to be risk based not peril based, while the transfer of risk frees up the corporate balance sheet which, in turn, leads to opportunity.
Risk and insurance managers from major corporates have long been talking about this issue, but have had little response from the traditional insurance market. “As a result, they [corporates] are being driven to make increased use of captives, and therefore the wider reinsurance market, especially in the use of structured long-term multi-class covers,” says Basi.
Despite this, new products and services are developed and launched every day within the insurance industry by companies of all sizes and distributors, according to McGinn at Allianz.
“A lot of what is often considered innovation is in insurtech, and is usually distribution innovation, and often needs the support of established ‘big-ticket’ insurers who have the data and experience to underwrite the risks,” he says. “The actual risk being insured is often not new, but existing risk types repackaged to meet more finely segmented customer needs.”
While there tends not to be an “iPhone” moment, a game-changer, in risk-carrying products, adds McGinn, there is a huge amount of innovation at individual policyholder level for commercial customers when it comes to tailoring of coverage, risk engineering and policy wording development as a result of the hugely competitive UK market.
“There is a great deal of this, but as it is behind the scenes and customer specific, it’s just not that sexy,” he says.
One such novel development is Tictrac, a health and lifestyle tracker that integrates data across an app linked to devices such as Garmin, Fitbit, Apple Health and Strava.
Tictrac received funding from Aviva Ventures, the insurer’s venture capital fund set up in 2015 to make investments in early-stage, high-growth-potential businesses, with the aim of bringing new opportunities, ideas and insight to Aviva. Tictrac aims to build customer engagement with Aviva and reduce preventable health conditions in users.
Aviva’s chief innovation officer Ben Luckett emphasises up-to-date insights on emerging global trends are critical to inform strategic discussions and decision-making.
Ultimately, to truly stimulate disruptive techniques and products, the mindset of adhering doggedly to predictable core revenue streams must be ditched. Time must be freed up for product innovators to experiment without fear of failure.
As McGinn attests, the biggest challenge is not ideas, but the ability to identify innovations that are sustainable, provide real value for the customer and make a reasonable return for the risk carrier.