The pandemic crisis has accelerated the need to digitise complex insurance classes such as credit and political risk insurance (CPRI). Ben Heaney, Founder and CEO of insurtech Dialogue takes a look at how complex risk is evolving.
A number of fast-moving dynamics are currently impacting these complex classes, highlighting the need for a smooth, efficient negotiation and placement of insurance contracts under remote working conditions.
Placing and processing this specialist commercial insurance business involves complex negotiations across multiple relationships, resulting in much unstructured data. Dialogue’s 2019 research into the CPRI marketplace found that there are anywhere between 10 and 100+ different variables – each with their own different dataset – for every enquiry in the CPRI market.
This leads to millions of different possible combinations – making the job of the brokers and underwriters all the more astonishing. And with 5,000 to 7,000 unique enquiries per year, that’s a hell of a lot of data to capture and maintain! Given that this occurs in just one relatively small, specialist class, it’s easy to see why each there is no one size fits all approach to digitally transforming complex risk classes.
Remote working driving change
The CPRI market is a key niche at Lloyd’s, where specialty risks have been negotiated and placed predominantly in person in the physical trading floor on London’s Lime Street.
And yet online submission, negotiation and placement of these risks has been essential in recent months under lockdown conditions, resulting in ad-hoc adaptations as the market attempts to digitise almost overnight.
The pandemic crisis has fuelled the debate over the future of the physical Lloyd’s trading floor, which was closed in March for the first time in the Corporation’s nearly over 300 year history. Before the pandemic, around 7,000 people used the building on an average working day, and in many ways the physical presence of the marketplace has become an easy target in the ongoing debates over the cost of doing business at Lloyd’s.
But the healthy debate over the costs of renting box space and meeting in person does to my mind pale in comparison to the hidden, frictional costs of doing business without a data driven, common platform.
Data, data everywhere
Time and resources are wasted across each specialist class, thanks to non-standard datasets, duplicative and error-prone manual processing and rekeying, as well as ad-hoc communications methods between brokers and underwriters.
None of this is their fault, the myriad of different processes reflects the way the subscription market has evolved to process such complex, non-standard classes of business.
Nevertheless, the debate about costs at Lloyd’s will no doubt hot up again ahead of the underwriting floor’s planned re-opening in September, albeit at 45% of normal physical capacity. At the same time, a virtual underwriting room is also planned – an online environment that will “combine the best features of One Lime Street with digital technology to create efficient, smart and collaborative ways of doing business,” according to Lloyd’s CEO John Neal.
Therein lies the rub – how to achieve virtual underwriting across specialty classes that all have their own quirks and peculiarities of handling business.
Data driven underwriting
The impact of COVD-19 has made issues around transacting any complex specialty risk business in person at Lloyd’s even more urgent – in fact it has engendered something of an existential crisis for the physical marketplace.
When brokers and underwriters do decide to meet in person (and are allowed to do so) the onus will be on the safe, efficient use of box hours in the room and increasing valuable negotiating and underwriting time, rather than administration time.
This will involve ensuring Lloyd’s has the technology in place to regulate peoples’ physical movements and safety on the trading floor, as well as to support high volumes of virtual negotiations and underwriting running in parallel.
On the virtual underwriting side, we’ve seen strong support from both brokers and underwriters for a solution – which, in the first instance calls for a non-proprietary, open standard dataset specific to CPRI.
Standardising datasets in complex classes would also make the reinsurance process easier, and has further potential efficiency implications for rating engines, underwriting automation and additional reduction of frictional costs.
Providing more structured data than current best practice and negotiating and placing risks digitally would represent a huge step forward for this corner of the market, and take the sector closer to intelligent, data driven underwriting that would support brokers and insurers alike.
Feedback from the market so far also suggests that independence is key – a front office led, CPRI specific platform that is not controlled by any insurer or broker will enable open discussions with all market participants free from conflicts of interest.
CPRI specific platforms must also support existing electronic placement systems and integrations with brokers and insurers through published APIs – in a one size does not fit all world, interoperability is key.
Streamlining the handling of large volumes of incoming enquiries with standardised processes ultimately will make business easier to distribute, negotiate, conclude and audit.
The final point must not be underestimated – it is critical in the increasingly regulated environment that compliance teams are able to audit / access certain data points, finance teams can check roadmaps, sales teams can check pipelines, targets etc, particularly in a volatile global market.
And, ultimately, the digital transformation of the CPRI sector and across the specialty insurance classes handling large, complex risks will provide a win for the clients of that market, who are clearly interested (albeit indirectly) that the sector continues to improve, increase its efficiency and innovate.
Getting this right now will shape the future of complex risk and the Lloyd’s market for years to come.
More at; dialogue.exchange/