Technology – making insurers future proof

At this year’s Airmic conference, you hosted a roundtable looking at technological developments and the insurance implications. What were the main discussion points?

Three core themes came out of the discussion:

1. Current technological exposures: we asked risk managers to consider whether today’s insurance offerings are fit for purpose. This was a very poignant question because the insurance industry traditionally struggles to keep pace with advancements in technology. There is a danger of focussing too much on coverage, giving less attention to how best to respond to a loss. The reality is that there are insurance solutions to cover technological exposures, but the real question is, how will a company effectively recover from the loss? Are risk managers looking at how prototypical equipment can be restored, for example?

Take artificial intelligence and chatbots, as an example. These technologies are constantly changing as they machine-learn over time. They are important assets that generate very useful data. And if the software is compromised, damaged or lost, it can be rebuilt. However, what may be more difficult to restore is the machine learning that the chatbot has developed, or the data it has generated.

Companies may have several prototypical items on their critical path and these will need to be replicated in an event of loss. Conversations between risk manager, broker and insurer need to be about more than just coverage. We need to look at technological risks from a practical claims perspective.

2. The future of technology and insurance: technology has the potential to transform insurance products for the better. Blockchain is a big development area and insurance products are already being built on this platform, such as the AXA product ‘fizzy’. Parametric insurance is another area that has and will continue to benefit from technological advancements.

3. Insurance norms and Risk Management: finally, we discussed the insurance norms that risk managers would like to see changed. We also looked at how technology can be used for risk management and what the opportunities are. Risk managers are looking for more innovative insurance products to help them manage today’s more complex risks, but to date, they have not received the guidance from the industry that they require. I want risk managers to feel empowered in the knowledge of what insurers can potentially do and for them to challenge us to bring these solutions to fruition.

Some risk managers face barriers in working with their IT and technology colleagues to manage technology-related risks. How can they overcome this hurdle?

Risk managers’ involvement in technology R&D varies from company to company and is heavily dependent on corporate culture. In some companies, risk management can be seen as a function that prevents or complicates innovation and technological development. There may believe that risk managers will put up barriers, or it may simply be that the IT department don’t think to involve the risk management function. There is also a perception that technology risks are managed and retained within IT, and risk management support is not required. This is not true and risk management should be seen as a necessary contributor to technological development. For this cultural change to be realised, risk managers need to proactively approach their business unit stakeholders to work through their ideas and match initiatives against risk management solutions that could safeguard new projects against potential threats.

How are new technologies changing the risk profiles of companies?

More than ever before, there is a greater reliance on technology and data. Take the fact that some company’s entire health and safety programmes are online; or that manufacturing companies are beginning to digitalise essential production templates. If there is an attack – systems are damaged, templates have been altered or lost – it is very probable that these companies would need to cease work until the problem is fixed. Then there are everyday flaws with network systems. Slow networks, faulty computers – how much do these issues cascade down the business and affect an employees’ ability to perform?

Risk managers do not always feel confident that these concerns are dealt with well by the insurance industry. Indeed, we have a way to go and the answer ties back to my earlier message: the conversations that we have as an industry have got to be about more than just risk transfer.

What are risk managers telling you that they want from insurers?

Risk managers want simplification. Traditional insurance and the procurement process can be quite cumbersome because this process is heavily reliant on information gathering from the client. While the industry is making inroads in simplifying the procurement process, there is still more to be done, particularly with the requirements of the Insurance Act.

In addition, some insurers are looking at simplifying the claims process. Our parametric solution is a good example of how we are doing this at AXA Corporate Solutions. Once a parametric trigger has been met and the policy responds, we pay the claim within 14 days – no claims handling is necessary.

How else is AXA Corporate Solutions innovating to ensure that it is fit for the future?

Some people believe that weather perils are a trade risk that cannot be insured, but this is not true. Parametric insurance enables us to accept and carry weather-related risk. The process is relatively simple. We need two things from risk managers: their area of concern and the expected financial impact. If that is unclear, then we can review cause and effect from weather statistics against their revenue statements. With this, we can conduct a thorough analysis to determine the company’s weather risks and build the appropriate parametric programme, leaving risk managers to choose the points at which they want to set the triggers, time limits and deductibles.

We’re starting to see more and more opportunities to be creative in this space, beyond just weather. For instance, we are currently working with our client on using social media to develop parametric insurance. Social media mentions can be aggregated to determine whether their reputation is good or whether it has dipped. With enough back-data, we can build indexes and create a parametric solution that meets their needs. It is a very simple solution: if the index moves by a certain amount, the policy will pay out – no loss adjustments are required and there is no lengthy claims process.

Insurers are making greater use of technology to develop more bespoke solutions. We are looking to support our clients financially through technological investment via risk management bursaries, as well as providing technical expertise from within the AXA Group for the development of innovative solutions.