AI isn’t putting commercial and specialty lines underwriters out of a job anytime soon, but technology can reduce the protection gap, expanding the re/insurance market into fresh pastures, Russell Higginbotham, CEO of reinsurance solutions, Swiss Re suggests.
The recent Monte Carlo Rendezvous was abuzz with conflicting talk about the role artificial intelligence (AI) will play in the future of the re/insurance sector.
Simultaneously a feared source of incalculable risk (and therefore unbridled opportunity) in the underwriting book, a revolutionary driver of underwriting smarts and operating efficiency, and a dreaded wraith ready to replace underwriters and brokers with more efficient machines – AI was everywhere.
For Russell Higginbotham, CEO of the Solutions arm of reinsurer Swiss Re, reinsurance is an avenue to providing the company’s clients with transformative services, and these are primarily led by technology.
In 2019, Higginbotham (pictured) assumed the role of Swiss Re’s regional president and reinsurance CEO for Asia. In 2022, he was appointed CEO, Reinsurance Solutions, and member of Swiss Re’s reinsurance management team. As of April 2023, he also became a member of the company’s global clients and solutions executive committee.
He acknowledges that commoditised business – particularly personal lines and SME business – are ripe for automation, or rather that this is already in full swing, but suggests the picture is much more nuanced for commercial and specialty lines.
“We take a balanced view on AI and where it can help you,” Higginbotham says. “AI becomes a catch-all for anything these days, such as for machine learning, which is probably where most of the market is for commoditised personal lines business – and there is a lot you can do there.”
In commercial lines, however, there is more complexity, with many more factors at play, he stresses, making AI more of a trusted personal assistant and data analyst than usurper to the market’s underwriters.
“For commercial business, the situation is more nuanced,” says Higginbotham. “That’s not to say AI isn’t incredibly helpful in terms of serving underwriting decision making. However, at this point in time, the role of the underwriter, being able to take strategic decisions, is still very important.
“What Swiss Re tends to think about AI is that you need to have quality data, you need to use the data appropriately, and you need to make sure you don’t have algorithmic bias. In working with our clients, it’s about trying to build the right foundations and move forward, progressively,” he adds.
In underwriting terms, it is not difficult to put together a compelling case for the need to use something more than manual processes and human minds to crunch the exponentially rising volumes of data and triage them in a timely manner.
“We help our clients navigate change,” Higginbotham says. “Our solutions are about making better decisions, whether it’s underwriting cases or optimising portfolios or dealing with claims. To put it in P&C terms, it’s about improving the loss ratio, through better underwriting and better management.”
He is keen to stress that the firm does not try to replicate the role of management consultants but bring a reinsurer’s perspective when working with clients.
“Our focus is instead where Swiss Re’s deep risk knowledge can add value to our clients,” he says. “This tends to be across the insurance value chain, from product design, to pricing and purchasing, through to optimising the portfolio and claims. We help our clients around growth, efficiency, optimisation – those are the things that people are most interested in.”
As digitalisation has become tables stakes rather than a differentiator, Swiss Re’s Reinsurance Solutions division combines software products with a mix of consulting, training and optimisation, he explains, before going into some underwriting examples, starting with more commoditised business.
“One thing that a lot of people want to do is push cases through as quickly and as accurately as they can, automating underwriting rather than having lots of loops, where the customer drops out at some point,” he says.
“Magnum is our automated underwriting system for life and health business. It uses Swiss Re’s underwriting knowledge to process cases in a one-stop-shop, and get as many cases through as possible with straight-through-processing. In Asian markets, we see approaching 90% of cases go through that system,” Higginbotham adds.
Pushing cases through an automated system is not in itself enough, he stresses, because firms are equally concerned that any handover towards greater automation in the name of speed should not affect the quality or pricing of risk on the book.
“Getting those cases through should mean better customer experience, greater efficiency, while maintaining the integrity of risk, and your risk scoring around that, is super important,” he adds.
For commercial and specialty lines business, there is a different emphasis, with a focus on underwriting insights, exposure management and portfolio optimisation.
He says: “Clients say they want to grow in a market they’re not in already, whether geographically, or by line of business, or that they have a problem, such as a profitability issue, within the commercial portfolio that they don’t fully understand. Or there could be performance issues on an existing portfolio, that are forestalling growth objectives. For these issues, we would turn to another product, called Commercial Insurance Insights.”
In this context, the technology helps provide a view of the business, including concentrations by geography or within a particular class or sub-class of business, which can then be benchmarked, using the reinsurers’ wider data, for instance on price adequacy.
“It puts knowledge in the hands of the underwriter and the portfolio owners. It’s the same if you want to enter a new market, to ask what [you] need to understand to avoid making mistakes, such as picking up the business that other people are pushing away,” he says.
Turning to the state of the reinsurance market at the current 1/1 renewals, Higginbotham suggests things have calmed down from the disorderly renewal of 12 months ago, when prices rocketed and many cedants struggled to find capacity.
“The feeling is that the market is much more rational than 12 months ago. I think a year ago, there was an element of dislocation, whereas I think it’s quite well structured at the moment,” he says.
Thinking about where the opportunities lie, he suggests that the underlying risks have changed perhaps as much as the pricing environment. Looking at the Swiss Re Institute’s latest reports, for instance, natural catastrophes broke several records again in 2023 with estimated insured losses exceeding the $100bn threshold for the fourth consecutive year.
“It’s easy to focus on natural catastrophe business, but if you also look at home insurance, life insurance, commercial insurance – the gap between insured losses and economic losses i.e. the cost to society just gets bigger and bigger,” he says.
There can be too much emphasis on competing for existing market business, but “making the market bigger by breaking new ground is the real challenge for insurers and reinsurers”, he suggests.
“Technology is going to help with that challenge, because it allows you to deliver the right products, at the right price, to more people. Data is the foundational step of that, and technology helps us interpret the data,” says Higginbotham.
“Different people want different things, of course. Some people want to focus on speed, some are focused on pricing, and others want to develop new products more tailored to changing demands. Data-enabled technology can help us in meeting all these needs,” he adds.