In a risky world, insurers are granted a direct line to the boardroom

AI and cybersecurity among areas in which industry’s know-how counts

Lloyd’s of London

Modern insurers know all about risk, cybersecurity, and artificial intelligence – so isn’t it time they were afforded greater influence as strategic advisors in the boardroom?

Vincent Vandendael of Lloyd’s of London
Vincent Vandendael of Lloyd’s

The inexorable march of technology has enabled insurers to arm themselves with cutting-edge risk-analytics tools – harnessing AI in particular – to make better sense of big data. As such, their value to organisations, in terms of risk assessment and management, has greatly increased.

“The risk-management needs of businesses are changing and the engagement with their insurers needs to be deeper and broader than ever,” insists Vincent Vandendael, chief commercial officer at Lloyd’s of London, regarded as the world’s leading insurance market. “Risks are interconnected, dynamic and widespread. Businesses are therefore looking for insurers who are uniquely focused on their needs.

“They need deeper risk insights as well as smart and flexible products that help them to militate against these threats, which include manmade perils, like cyber attacks, natural catastrophes, and new and emerging risks, such as autonomous technologies or AI.”

Vineet Singh, Tata Consultancy Services’ head of insurance technology in Europe, similarly believes the industry’s ever-improving ability to mine rich sources of data that could inform critical business decisions is becoming too irresistible to ignore. His organisation’s Global Trend Study, published in August, found that of the 13 industries surveyed insurers invested $124 million in AI, almost double the $70 million cross-sector average.

“Insurance is among front-runners in AI adoption, which may come as a surprise to some,” Singh says. “For instance, the rise of the smart home, with smart devices – such as the Amazon Echo and Nest thermostats – is helping the home insurance industry to reap the benefits of AI, machine learning, and the Internet of Things.

“These devices and sensors are gathering information in real time, providing a continuous flow of data on how people live. This data – once just an unmeasurable flood of information – can now be quickly analysed and used thanks to AI.”

Cybersecurity is moving up the list of priorities for C-suiters, and the insurance industry can assist in this area, too. Nik Whitfield, chief executive of Panaseer, a cybersecurity company that advises directors on their level of risk, notes that Allianz expects the cyber insurance market to generate $20 billion in premiums per annum by 2025 (the current figure is almost $4 billion), making it “one of the fastest growing segments of the industry”.

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Little wonder, then, that the world’s first cyber insurance comparison website, CyberDecider, launched in September. Neil Hare-Brown, chief executive of CyberDecider, says insurance experts are “now being presented as a consultancy option for boards – especially where their experience and data relate to loss-event frequency, and magnitude, because that can help better understand cyber and other complex operational and political risks”.

He continues: “There is no doubt that the richer data from insurers is becoming more sector-specific and valuable to businesses. Helping organisations achieve better risk management with an optimal balance of mitigation, transfer, avoidance and acceptance will not only make businesses more resilient but also allow them to compete better.”

Insurers should be very careful about the line they tread, for reasons of conflict of interest.

However, business consultant Marc Lawn, who has worked at a high level with organisations as diverse as BP and Ordnance Survey, warns: “Insurers should be very careful about the line they tread, for reasons of conflict of interest. If they are advising a client that they are also insuring then they could walk into a legal minefield. Do they open themselves to litigation later because they influenced a decision that badly backfired? Could they be accused of inflated profits because there are no checks and balances in terms of risk advice and premiums?”

Hare-Brown agrees, and says: “There is a potential problem with intelligence being delivered by insurers themselves. One might envisage that certain consulting and boardroom interactions could result in an insurer becoming conflicted in their understanding of business controls and the provision of insurance cover.

“It is therefore important that insurance specialists should also be suitably independent from the implementation of controls within the organisations to whom they are providing advice.”

This topic of data-rich insurers evolving to become vital boardroom allies is only likely to intensify, though. “Insurers will soon be using blockchain technology in their operations,” says Singh, pointing out that the September-launched insurer collective B3i (Blockchain Insurance Industry Initiative) is already “actively looking at ways the technology can make businesses in the sector more efficient”.

Mark Boulton, UK and Ireland insurance sector lead for IT solutions provider Fujitsu, is equally optimistic that insurers will become invaluable consultants to businesses of all sizes – and sooner rather than later. “The digital age has ushered in an incredible opportunity for insurers to evolve the very purpose of the industry in the very near future,” he says. “New technology is enabling it to shift its focus away from reactive to proactive.”

Vandendael of Lloyd’s adds: “Boards do not like surprises and by having a deep, strategic partnership with their insurers businesses are able to respond to a growing array of risk-management challenges.”