GR looks at how smart application of technology will be crucial in driving down costs for the labour-intensive insurance industry
The impact of science and technology on the insurance industry will be the theme driving the International Insurance Society’s 50th annual seminar in London in June. Delegates will discuss topics including big data, cyber risks, computer modelling, digital insurers and the other effects of rapid technological change on the industry.
Science and technology affect the industry in many ways, from influencing underwriting decisions to helping streamline business processes, from innovation of new products and lines of business to advances in disaster resilience and recovery. The very nature of insurance companies is being changed by technology, with firms that operate online or over the phone taking the lead in cutting costs and the effective use of data.
Suki Basi, managing director of risk management software house Russell Group, says: “The industry is going to be forced to cut costs and technology is going to be central to that.
“Historically, the insurance industry has been quite labour intensive. If you look at the example of Direct Line, it has been used for personal lines, but I think that model will be used more and more for the wider insurance market.
“What has been done by people will end up being done by systems. There will still be people – there just won’t be as many.”
Basi predicts that key technologies for the insurance industry will include scalable processing, faster disks, cloud storage and bigger computer machinery at more affordable prices. Projects such as the Ruschlikon Initiative have been set up to help further automate (re)insurance back office processes such as electronic claims and settlements using ACORD standards.
The Ruschlikon Initiative is an industry agreement between brokers and underwriters to connect backoffice software to Acord EBOT and ECOT standards.
Basi says: “The industry’s desire to cut costs has led to a lot of optimised data processing – systems that allow companies to capture data once and use it at many points within the process.
He predicts that some of these processes will continue to take place locally while others occur in the cloud. Basi adds: “That does pose a big threat, in the sense that security is an issue. The industry will actually have to focus on the effects of that, so it is no surprise that business interruption from cyber-type threats is actually growing.”
AIG head of cyber products EMEA Jamie Bouloux agrees that cyber insurance takeup will be increased where business interruption risks are not covered by property policies.
He says: “The reality is that portfolios are building as organisations are realising that they have this risk and are offsetting this risk.
“These big breaches continue to remind directors and officers that they do have a fiduciary duty to protect their data assets. They are looking to the risk transfer markets to shift that responsibility and actually find monetary remuneration in the event there is a cyber breach.
“As long as that continues, the cyber market will continue to grow. There is definitely a place for cyber insurance in the long term.”
Modern organisations are at risk from a number of cyber threats, including hacking, network interruption, data breaches, cyber extortion and even physical damage. All this provides challenges and opportunities for (re)insurers.
Bouloux says: “There are a whole host of different reasons as to why different organisations are coming to the insurance market to look for solutions in this space.
“Network interruption is really the biggest factor behind people buying cyber insurance in Europe.
“If someone were to hack in and take your systems offline and access data, that business interruption event is not covered by property cover. So the insurance market is looking at solutions and offering loss of net income cover to organisations that can’t access data.”
But technological advances will not just change what is underwritten, but also the way that underwriters make decisions on risk and price.
Basi says: “Transaction systems and modelling systems will have to interact more. That will require new standards. Focusing on the modelling side, it has really been driven for insurers by the cat models.
“Outside of the cat models it really is completely bespoke. There is a lot of talk of non-modelled risks, and that will grow.”
This growth will be most pronounced in casualty lines, natural energy, marine and marine cargo, according to Basi.
What will not be confined to these lines will be the impact of science and technology, which has already changed the insurance industry, will continue to do so and will give the IIS delegates plenty of food for thought in the meantime.