Q1: What are those emerging risks that insurers must pay attention to whether now or post Covid-19?
A1: Recent Willis Towers Watson survey shared that insurance executives stated that the top 3 most dangerous risks within the coming year were cybercrime, disruptive technology, as well as pricing and profit. I believe that Covid-19 will drive increase interest in additional emerging risks types and topics including financial instability, pollution and climate change, gig economy and SME coverage, as well as risks such as business continuity, operational resilience, supply chain management including the evolution of renown risks such as D&O liability, employment practices liability (including wages and hours), and communicable disease coverage.
Q2: From the lists, you shared above, which emerging risks you consider to be the number one risk of all?
A2: Weather-watchers know that climate change is a clear threat globally. Insurers such as Allianz, AXA, Munich Re, and Zurich used to cite it as their top emerging risk on their materiality assessment matrices, as well as inclusive workplaces and digital transformation.
I have two risks actually! Cybercrime or climate change... telling you which one I select between the two: "it is hard to say!"
Cybercrime is also progressing to become a micro risk. It doesn't just affect others; it affects all businesses including the insurer business too.
Q3: We often hear that disruptive technologies are increasingly becoming one of the most pressing threats of the century. Do you feel this is correct?
A3: Whether we are talking about threats coming from Tech giants or those rising from emerging InsurTechs, FinTechs, and WealthTechs insurers are not only faced with dynamic external market forces, but also competitive threats from advanced technology-first players. Tech giants e.g. Google, Amazon, Facebook, Apple, and Tesla are still valued at Billions of US$ & young ventures focused on immediate digitization & transformation needs are also doing OK. InsurTech received $1.3Bn and HealthTech $6.2Bn in funding in Q1 2020.
Q4: Whether emerging risks or disruptive technologies. Where should insurers concentrate their attention right now?
A4: Insurers must recover quickly from the pandemic and market flux and uncertainties to spring back into health. The pandemic is testing the operational resilience of many business models, and their ability to respond quickly to customer demands. Right now, insurers need to deploy resilience strategies to support more advanced sales and distribution, pricing, claims and servicing operations too. It is for many a clear time for prioritization. Many insurers are assessing and selecting those emerging risks that need evaluating most to drive the right future impact, and that will yield the most interesting long-term growth opportunities.
Q5: What does this actually mean in terms of future technological requirements?
A5: Companies must improve their understanding of their risk portfolio on an individual and aggregated risk basis to mitigate upcoming risks. They must build highly detailed risk profiles to facilitate more flexible risk-based pricing for instance. This requires technology enablers. "Tech" is at the core of future transformations. Problems will be solved with better predictions through machine learning, advanced big data sources, and other sophisticated tech solutions that are coming to market.
Q6: Will emerging risks create a new generation of insurance models?
A6: It is likely. Dynamic economic shifts, pandemics, climate change, sudden poverty, changing consumer behavior are creating new risk types for which insurers have no expertise. For example, there is a need for a joint consortium like co-creation forums to tackle the climate change challenge. Insurers must determine a series of paths forward and help policyholders become more sustainable to minimize such types of risk long term. Another example, autonomous driving and intelligent systems drive new risk types too. The question is who is liable if a driver instructs an autonomous car to do something and causes an accident? Driver or Car Manufacturer? Counterparty exposures must be revisited. Many insurers already have a series of activities in place to determine how to assess risk and drive future efficiencies. Everyone has to keep up to date with emerging developments to design customer aligned products and services of the future. For gig economy and SME workers, new technologies enable flexibility in the way we as individuals manage work and life. Adaptive insurance models must and will continue to come to market Insurtech.
Q7: You shared with us earlier that we must pay attention to Cyber risk. Could you elaborate a little bit more about your viewpoint on the topic?
A7: With COVID-19 and homeworking, we will start to see new cybercrimes (e.g. home networks and personal devices). Coverage gaps will increase for individuals and businesses as the usage of tech evolves and more sensitive digitally kept records appear. Insurers must gain a better view of their total aggregated risk exposures. Some insurers have in-house dedicated cybercrime detection engineers which look at weak points and ensure that customers’ systems are kept secure. Risk profiling, footprint, and prevention. As we all know, Covid-19 creates new types of commercial liability. New opportunities will emerge to evolve underwriting techniques and welcome more sophisticated modelling approaches. InsurTechs cannot yet solve the problem end-to-end as it takes time to do so.
One significant risk from cyber is the increasing fragility of information and data, and the subsequent impact on intangible assets such as intellectual property. Thanks to Raconteur for a great infographic.
The process of continuous data sharing to inform continuous underwriting will shape future system requirements. The sector must build a robust & ongoing defence against cybercrime to gain a better picture of where the liability lies.
Q8: What would your recommendations be to those insurers that are today focusing their attention solely on immediate short-term priorities?
A8: A ‘wait and see’ approach is certainly not an option. While emerging, these risks are real, significant and increasing drastically in exposure every day of the week, impacting large segments of society, including businesses and individuals. Emerging risks are continually evolving, changing, and growing. Let’s not forget that we could have planned but may not have been able to fully comprehend the scope of COVID-19 as other unforeseen crises that struck economies around the world before. For example, cybercrime is expected to cost the world $6 trillion annually by 2021 cybercrime expert Frank Abagnale predicts. Connectivity-related changes are increasingly driving a new focus on emerging risks for re/insurers.
Insurers today must test and evaluate their business models and then develop strategies that are capable of weathering and absorbing the impact of a constantly changing risk landscape.
Q9: What should insurers do to keep abreast of those opportunities that are emerging right now, as well as the accelerating trends we were hoping would come in the far future?
A9: Insurers must find new products and services that address customers’ needs in a much more bespoke, personalised and customizable way. This means increased segmentation and profiling activities, in addition to development of new adaptable pricing models.
Q10: Would you like to share any final words of wisdom with our audience today?
A10: Don’t expect someone else to sort this out. Many market players are waiting for someone else to take the first step. We are all accountable in some way. Let’s start working together to create a better and more joined-up world. Looking forward to reading the comments and continuing the conversation. Do reach out if you have a question!
Insurtech Chat is a Twitter chat hosted by Minh Q. Tran, Managing Partner of Odysseus Partners. For more information, please contact minh@odysseuspartners.com.