In this first edition of Emphasis to be published on my watch as head of the expanded, post-merger Investment, Risk and Reinsurance segment at Willis Towers Watson, we make no apologies that the theme of insurance digitalization takes center stage in a majority of our articles. Whether you’re a digital apostle or a reluctant fellow traveler, there is no getting away from digital’s anticipated future impact — both potentially positive and threatening.
But as a child of historians, I tend to see the associated challenges as an extension of the business fundamentals that have existed in (re)insurance over the centuries. For all the disruptive changes that may arise from technological and data innovation, the core requirements for underwriting risk haven’t really changed so much.
From the time when merchants first started meeting up in Lloyd’s Coffee House in London to underwrite marine cargoes, a few key things have helped set successful insurers apart.
Critically, there is the ability to pool and offset risks. No (re)insurer has flourished for any length of time with an overconcentration of risks or without an underlying understanding of the customers and risks they’re taking on. Over time, successful insurers further differentiated themselves by their use of data to quantify and qualify those risks. That applied as much to the tacit realization in the past that the Bay of Biscay was a perilous route for shipping as it does now to auto insurers processing huge volumes of telematics data to offer usage-based insurance policies that reward safer driving, or to life insurers’ use of mortality assumptions. And without exception, insurers have relied on smart people to drive businesses forward.
Quite simply, technology makes it necessary to bring those same qualities to bear faster, even more astutely and in a more fluid competitive environment. These are the practical realities of the disruptive changes the industry faces. Not all will be up to the task or have the funds or resources to deliver their aspirations. Some consolidation is inevitable, although new partnerships and investment models (often involving the entrepreneurial InsurTech businesses sprouting up within and around the sector) also offer ways forward.
Choose a path
Insurers have alternative paths they could pursue that will heavily dictate approaches to technology and analytics, and the changing mix of smart people needed to translate ambition into reality. Market strength is likely to be derived from choosing a course and setting clear parameters for how companies develop and experiment with emerging technology and analytics capabilities, and who they need to work with along the way. For example, they could go big, targeting the biggest possible customer base by enhancing the ability to process and crunch masses of data. Others will prefer to go deep to best position themselves in particular niches. In between, there will be companies that target superior insight as a basis for market positioning.
In all cases, insurers need to align their efforts and retain a clear vision of how technology supports long-established, fundamental insurance success factors.
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Carl Hess at email@example.com.