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Growing pressure to modernise

As pressure grows on the insurance market to modernise, firms are increasingly looking beyond product innovation to create and capture value.

A lot of discussion is currently focused on developing partnerships within the insurance ecosystem, that promote customer centricity and a focus on value for money and fairness.

Some in the industry are even talking about a step change from product to service and even the creation of ‘customer experiences’ – a paradigm shift from the well-heeled view of insurance as a commodity, or ‘grudge’ purchase.

The Financial Conduct Authority’s Market Study (MS 18/1) and publication of the Interim Report in mid-2019 will inevitably continue to focus minds on the dual issues of loyalty pricing and price discrimination. Some firms have already taken action in anticipation of the likely outcomes that includes assigning accountability for pricing strategy, conducting reviews of underwriting policy and existing books of business and overhauling what MI is collected, and how it is used for decision-making. Whilst the market study is focused on retail customers, there could be potential implications for commercial SMEs.

Beyond this immediate focus on the pricing of retail general insurance products, how can the industry help corporate organisations respond to the dynamic and changing risk landscape that has created intangible risks that are difficult to assess and quantify due to a lack of historic data?

A changing risk landscape

From a functional perspective, there are those who say #underwriting as a discipline could reduce, or even disappear with the introduction of advanced #data and #analytics. Whilst #AI and #robotics has the potential to reduce the cost of doing business, it will ultimately be people who will lead the #innovation process and ‘design-in’ simplicity for the benefit of the end-customer.

But how can this be achieved when the risk landscape is changing so rapidly and the exposure firms face to intangible risks has increased exponentially? Seven out of ten of the most valuable businesses by Market Capitalisation are platform based (Alibaba, Facebook, Apple) and a significant portion of the value is driven by intangible assets – reputation, brand, data and know-how – rather than tangible assets.

Platforms offer the opportunity for participants to create significant direct and indirect network effects, reduce costs and turn the aggregation of data into valuable business insights and a superior customer experience.

The stark reality is that many traditional insurance buyers face the challenge of not being able to arrange insurance coverage for the most significant risks their businesses face, as the products are simply not available in the market. Dynamic and complex connected business risks have fundamentally changed the risk profile of the end-customer in ways not envisaged only a few years ago.

Relationship driven

To modernise and prosper, the insurance industry needs to continue to be relevant to its customer base. The notion of a platform-based business may given the impression that the importance of relationships has become somewhat less important than the technology that sits behind it. This could not be further from the truth, with customers willingness to pay a price-premium driven almost exclusively by an inherent notion of trust as a prerequisite to fairness and value-for-money, whether retail, SME or corporate customer.

The way forward

The U.K. regulators have gone to great lengths to emphasise that in a post-financial crisis world, they regard operational resilience to be as important as financial resilience. By extension, the same thinking would apply to corporate firms who must continue to provide critical services, even if risks materialise in ways that had not previously been anticipated. This gives rise to many opportunities for the insurance industry to provide new services and experiences that helps firms anticipate and ultimately manage unforeseen circumstances.

Reciproco provides knowledge integration across risk, solvency and strategy, including digital transformation, leading complex and unique projects in regulated sectors. Helping senior executives and management teams focus on strategic challenges to create a competitive advantage.

Darren Munday is the founder and Managing Director of Reciproco. An experienced executive with over 20 years’ global experience with multinational companies, including Chief Risk Officer reporting to the Board.

Darren is an Honorary Visiting Fellow of the Digital Leadership Research Centre, Cass Business School where he also holds an Executive MBA.  Darren is a Certified Fellow of the Institute of Risk Management (CFIRM) and Chartered Insurance Risk Manager (ACII) of the Chartered Insurance Institute.

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