Strategic importance of digital grows as insurance evolves

In the third in our three-part miniseries on artificial intelligence (AI) and underwriting we look at how this technology is changing the wider insurance market and how parties in the value chain will benefit. Richard Hartley, CEO, of insurtech Cytora, provides insights on e-trading and the separation of trade.

This final part of the series is published ahead of the Intelligent Insurer webinar ‘Underwriting Transformation: Leverage AI to Win Better Risks and Build Stronger Relationships’ on May 28, 2020.

Question: How will AI shape decisions in the broader insurance market as well as at individual companies?

Richard Hartley (RH): It’s interesting to consider insurers’ tactics around the separation between e-trade in the open market. For example, how much of my open market book should I migrate into my e-trade business? This separation of trade is something a lot of insurance companies are thinking about.

Q: What other areas are likely to see AI-driven change?

RH: Another interesting area to discuss is around how insurance companies are going to think about the ’going direct’ question over time. So, what is the role of AI in terms of how they think about distribution? We see a really clear role for AI to help brokers and I'd re-emphasise how it can free up and support underwriters in building strong relationships.

AI will also give particular parties in the value chain more information about risk and close some of the information asymmetry that exists. One example is that as data becomes more prevalent around the risk, some reinsurers will have a better view of the individual risk exposures than the primary carrier that’s actually bearing the risk.

Q: How will insurance companies evolve as technology continues to advance?

RH: Some of our customers are thinking about whether insurance companies will become more like technology companies in the future, as we’re seeing with Ping An in China. Ping An are providing insurance but they’re also selling software. Insurance companies that take that approach need to become very technology driven, as well as widening those tools and technologies to other parties in the value chain. That can be brokers, reinsurers or direct customers.

SCOR’s new strategy ‘Quantum Leap’ highlights this area of development where insurance companies are becoming more like tech companies. We’ve seen the same thing in investment banks, with Goldman Sachs talking about themselves as a ‘technology company best performer’. We should expect to see technology progression like this in the insurance space.

Q: What’s the next development area to watch?

RH: The next steps for the industry will be a process of development as insurance companies become more technology enabled. We’ll see some insurance companies really accelerating that and becoming very technology driven.

We’re already seeing that with the new start up insurers such as Lemonade and Next, which are built in a tech first way.

But it’s not going to be a wholesale shift. Companies like Berkshire Hathaway will absolutely continue being highly successful the way they are, selectively taking risk, focusing more on the high severity, low frequency exposures. We’ll probably see a bit more separation and we’ll see more interesting choices. This is particularly true for some of the composite insurers that are doing a bit of everything right now. They’ll have a choice to make around what they want to become.

These decisions will have big implications for the unit economics of these companies. Insurers will need to think about how to run their tech enabled business as a scalable platform, as opposed to a piecemeal effort with many different businesses and different units.

History has shown us that companies that are very streamlined and that do one thing really well are generally most successful. So we will see some clear strategic choices being made as some of the risk around technology starts to be reduced over time.

Sign up for the live webinar ‘Underwriting Transformation: Leverage AI to Win Better Risks and Build Stronger Relationships’ (May 28 @ 3 PM BST/10 AM ET) by  clicking here.

Paolo Cuomo, director of operations, Brit Insurance, will be joined by Andrew Rear, chief executive officer, Digital Partners, a Munich Re Company, Will Thorne, head of EMEA, specialty and Lloyd's Ventures, SCOR, and Richard Hartley, CEO, Cytora.