Technology will shape winners and losers in 2017

2017 looks set to be another year of turbulence, challenges and change for the re/insurance industry as companies must again grapple with a backdrop of political and economic uncertainty and increased competition in their own industry as capacity continues to pour in.

That is the view of Richard Clark, head of business development and specialist commercial at Xuber, Xchanging’s insurance software business, who adds that these dynamics will make profits even harder to find. This, in turn, will drive companies to seek diversification and consolidation as companies seek efficiencies and cost savings wherever they can.

These pressures also come against a backdrop of new technologies entering the industry and revolutionising some sectors. Clark says these will emerge in a variety of forms and the extent to which players are able to embrace and successfully leverage these technologies may well determine how successful they will be going forward.

“Technology is having an influence on the industry from a lot of different angles. In some areas it is professionalising the business, particularly the underwriting process, in others it is changing the value chain or making companies more efficient. But this is just the start and the companies that embrace technology in the right way will gain an advantage in the future,” Clark says.

On the underwriting front, he says that new technologies are influencing how companies rate business and assess the quality of new risks as they improve consistency and efficiency in the front office.
“This greater professionalism makes for a better quality book of business,” he says.

This is particularly true in the area of delegated authority. As more carriers engage with managing general agents (MGAs), technology is helping companies keep better tabs on the business being underwritten, while also helping these smaller businesses comply with regulatory requirements in an efficient way.

“MGAs are now on the strategic radar of every re/insurer and using the right technology can help shorten the value chain, allow better communication and help with regulatory compliance,” Clark says.

He also expects to see a lot more cloud-based software being utilised in 2017, offering smaller companies cost-effective solutions by reducing the requirement for upfront investment in hardware, while also offering the ability to grow and scale up going forward.

“Such solutions offer companies agility and flexibility, and they can also be designed in a bespoke way to exactly suit the needs of individual companies,” Clark says.

“We are seeing a lot of new entrants, and this is an attractive option for them as they effectively use the software on a consumption basis. It is an attractive commercial model and more people are looking to use it.

“It also overcomes some concerns companies may have over data security. You have chief information officers concerned by where their data sits. At one point they may have wanted their own big data centre but the providers of cloud solutions are now addressing these concerns.”

The elephant in the room for many companies remains their legacy systems which will need replacing, or a fundamental overhaul, at some point. He says consolidation can often act as a trigger for companies biting the bullet on such change, but many companies are still slow to act.

“There is a reluctance to commit to new systems because of the time and scale of the task for many re/insurers but the fact is that they can paper over the cracks for only so long,” he says. “Even post a merger or acquisition, people are still using two systems or gluing together big data warehouses or working off completely different systems. I think we will see more companies looking to address this in 2017.”

Some parts of the industry are being radically changed by technology. Personal lines such as motor and health are transforming thanks to technology developments and the growing use of usage-based insurance and applications will further revolutionise parts of the market. Equally, the reinsurance sector is also starting to adapt to offer suitable capacity and protection to start-ups and new initiatives such peer to peer insurers.

Clark believes that this trend will now start to enter into the commercial lines space as more re/insurers seek ways to become more efficient, implement better risk selection and improve customer retention.

“Some of these developments including peer-to-peer insurance, for instance, will fundamentally transform parts of the market,” Clark says. “The real question is which companies will be the quickest to embrace these new technologies that can help them steal a march on their rivals.

“We are seeing a number of the bigger companies form innovation units or divisions to try and ensure they don’t miss out on these changes as it can be difficult for larger companies to be innovative or change quickly. I expect more of the same in 2017 as companies jockey for position and try to ensure they don’t miss out.”