With the long journey towards a unified regulatory system for insurance in the European Union – Solvency II – finally appearing to be near its end, the re/insurance industry has realized that even greater challenges need to be addressed – some of them urgently.
In an interview at the European Insurance Forum 2015, Sarah Goddard, the CEO of the Dublin Insurance Marketing Association (DIMA), the Forum’s organizer, said: “Where we’re going to next is very much – Let’s have a look at what the biggest uses are; let’s have a look at how the world is changing.”
The changes, driven by the exponential expansion of technology and social media, are in the process of altering the way the industry does business. “A new client base is developing,” Goddard said. “So, we take a look at things like how the new delivery systems might take place; how people are interacting with the world around them; what are the new models? What are the new risks?”
It’s a rather daunting list, and at the top is the digital revolution, which affects everything else.
Ian Goldin, Professor of Globalization (certainly a new discipline) at Oxford, described the changes that have affected the world since the Berlin Wall fell in 1989 as “everything spilling over,” as the world becomes “globally interconnected.”
In addition to the successive political crises in the Middle East and the continuing fallout from the financial crisis that started in 2007-8, he cited the population increase – there are two billion more people than in 1989 – and the growing interconnectedness of trade and supply chains as well as new economies in China, India and elsewhere, are making the “world a far more complex place than it was.” Two thirds of economic growth in the last 25 years – “the most rapid in history,” Goldin said – has been in emerging markets, accompanied by a burgeoning middle class.
The effects of the growth are everywhere, and, as one would expect “there’s both an upside and a downside.” While new found wealth has raised living standards for many, the dislocations brought on by that growth have worsened the lives of other people, especially in poorer countries, who haven’t shared in its benefits.
It has also generated what Goldin described as “anthropogenic risks,” i.e. those created by man not nature. “This affects risk management, as complex and integrated systems mean the loss of the ability to manage risk curves.” At the heart of that inability is “a ” what the risks are, or to, foresee what they might be.
Goldin’s biggest actual concern, however, is one that’s plagued mankind since the dawn of time – pandemics. They are more easily spread now through international travel than they have ever been. It took months for the plague to reach Europe by ship and to spread across the continent, killing between 40 and 50 percent of Europe’s population. Today diseases can spread in 24 hours.
Goldin also isn’t exactly favorable to increased regulation, because the people doing the regulating tend to address national rather than global concerns. As an example he explained that Solvency II, and presumably other capital requirement regulations, would force investors to “sell assets in a down market – a psychological – not an economic – response, and the wrong one.”
Goldin wasn’t alone as a presenter from outside the re/insurance industry. Many speakers and panel members weren’t part of traditional insurance cultures. In this sense the 2015 EIF departed from conventional conferences. It brought in from different backgrounds that brought their expertise in other fields to bear on the industry in the hope of finding new solutions to some old problems.
Joey Boyland, a professional Gaelic hurling player, described the necessity of motivating players in order to encourage them to optimize their performance in games, which in turn raises the level of play for the entire team, and how he has applied that lesson to his other business as a physiotherapist.
People from within the industry also picked up on the necessity to view it as a “big picture.” Vicky Carter, Vice Chair of operations at Guy Carpenter said you “have to value knowledge, and create a clear path for people to follow. Identify what a person is good at – reinsurance, underwriting, brokerage, maybe not managing – and then develop that talent.” Not everyone should become a manager simply because of seniority
Jim Jones, the executive director of the Katie school at Illinois State University, explained that he keeps in touch with former students to make sure they are still learning and receiving the kind of training they will need to build successful careers. “If they don’t get any feedback, they have no guide as to what they may expect in the future,” he said.
That advice will become increasingly important as the re/insurance industry remodels itself to face a changing world. At the 2012 EIF conference XL’s CEO Mike McGavick warned that the re/insurance industry was at risk of becoming irrelevant. He said the industry needs to start gathering and correlating data to come up with “new solutions to new problems” and start recruiting as much new talent into the industry as it can in order to do so.
At this year’s conference Enda Murphy, Executive VP and Head of global business operations at RGA Re, said much the same thing – “insurance is not on the growth list.” In fact as a percentage of GDP it has fallen in relation to GDP in most developed countries, notably the U.S. where it used to be 1.6 percent of GDP, and is currently only 1.3 percent. In Europe it’s dropped from 0.9 percent to 0.8 percent.
If that trend is to be reversed the re/insurance industry must begin to seriously consider how it does business, and that begins with improving the number and quality of the people it recruits and how they are trained. Doing so won’t be easy.
Commenting on the panel that included Murphy, Goddard said: “The vast majority of people, myself included, never meant to go into insurance. It wasn’t something that was a career choice. I actually only know two people I’ve met in my life who decided to go into insurance.”
This “bad rap” is partially due to what could be called the “attachment point syndrome.” Excluding commercial insurance, most people have experience with insurers only twice – when the buy a policy and when they make a claim. The latter causes 99 percent of the problems, and leaves many people with a cynical and highly negative view of the industry – whether it’s deserved or not.
The deluge of social media has only worsened the problem. Instead of telling only your friends and relatives that your claim was denied for reasons you feel were unfair, you can now tell the entire world. There has to be a better way, and that starts with getting people who can communicate on social media effectively and who are motivated to do so.
People are the key. Darius Kumana, head of IT and digital strategy with Markel in London, isn’t from an insurance industry background. He said he joined Markel, as he “saw an opportunity in insurance to use his prior experience to make needed changes.” He also stressed the industry’s problem “isn’t an IT problem; it’s a business culture issue.”
His colleague on the panel, Ian Lucey, Director of IT company PixAlert, pointed out that with the power of social media, “it’s the consumers who are leading the changes.”
Listening to those actual and potential customers, and finding out what they do and how they do it, is therefore of critical importance. That isn’t really happening in the insurance industry, but it is outside of it. “Customer perceptions are changing,” Kumana said. “People’s relationships with technology are changing. The pace and scale of change, just in terms of ubiquitous tech, is phenomenal. Google has 100 billion searches a month. People talk about big data. I think that there’s a stat which is something like 3.4 zetabytes of unique information…I think that’s 21 zeros at the end of that.”
There’s no way the re/insurance industry will be able to cope with that, and what’s to come, unless it has the people to do it with. “Invest in new people,” Lucey said, “people who will come into your company and change it. Get them into the culture of the company; let them create products, or buy products, tailored for that company only.”
Kumana said: “The ability for us to reach our customers and have direct, fine grain conversations with them has now been tremendously empowered through tech. The most crucial part is customer experience. Actually thinking about the real problems, and real issues, and pain points our customers are experiencing and trying to provide them with solutions that address their immediate needs.”
The industry already has the ability to do a lot of that. The overworked phrase “big data” isn’t a mystery. Re/insurers have been gathering it for 300 years, a fact that only recently has been recognized by non-insurers, such as the UN, who has launched several programs in which they’ve agreed to participate.
The re/insurance industry’s seeming inability to come up with solutions to take advantage of technology is a consequence of not having enough qualified people to come up with those solutions, and lead the industry into a new era.
It already has a wealth of expertise in the underwriters, actuaries, catastrophe modelers, risk managers, specialized brokers and others who are integral parts of its operations. Find their equivalent within the technological community, recruit young people, and give them enough backup to do the job, including treating a failure as a learning experience, not a catastrophe. The maybe Mike McGavick, now the head of XL Catlin, will be able to tell the industry it’s become more relevant.
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