Let’s have a think about risk. Mark Huxley, Non-Exec Director at Altus Consulting offers a few insights;
Risk is by its nature a very subjective and at times a personal concept. Fill a room full of specialists and looking beyond all the obvious empirical elements of risk, the variances in what is deemed a good or bad risk becomes highly subjective. In our industry parlance we often choose to define this as risk appetite. However, boil it down, it’s as much to do with the instinctive causes, effects and consequences of applied experience.
Given what follows I just want to be clear at this juncture that I am in no way calling this out negatively or undermining the vast skills those controlling risk have. Rather, in reading what follows, I think it is important to have this framed in our minds as a core driver as we consider how consistent and objective risk decision-making are and more so could be made.
Much of this subjective prejudice prevails across the simple risk classes of commoditised, low-value insurances, leading to a diversity of cover, price and sectors it wishes to serve. However, when turning the spotlight onto the vastly more complex, multi-faceted risk classes, often written on a programme basis and across multiple domiciles, then the ability to have consistent risk approaches with command and control becomes infinitely more difficult.
SPOKE AND HUB
Without over characterising, these classes are generally written on a hub and spoke basis. The hub being where all the regionally disparate information is centrally logged and the spoke, comprising the regional experts that compile and then distribute that information to the middle. Whilst this has broadly worked well hitherto, I think it is fair to say that when one looks deeper into the interoperability of transacting these risks, and when this extends to thinking about physical elements such as time differences and contractual complexities of things like regional regulation, prevailing laws on risk transfer and the like, then the whole process becomes an exercise akin to herding cats. Huge credit therefore should be given to those within the carriers and brokers that have managed to keep this under control thus far.
However, and it is a pretty big however, these overcomplexities have caused many an administrative and operational error that sometimes go unseen, but tragically often come to light during the claims process when the client is in a more fragile place. Is this a material problem though? On a quantity measurement I’d say not, but when things go wrong, it generally has a material impact, such that as we will read, remedies have been sought. Considering for one moment the expected outcomes of clients and the correlating sheer effort already mentioned to keep things under control in what are the generally multi-party intermediated risks, then one must conclude that there are too many touchpoints where accidents can happen.
Being in the midst of the tech-led revolution as we are, now is a perfect time to reflect on the traditional practices and recognise the huge opportunities available to reconsider how technology can be harnessed to help drive better decision making, consistency in approach, improve regulatory conduct risk and ultimately greater contract certainty in the insurance contract(s) in place. Which when combined, serve to improve the overall client experience.
CONTRACTS ARE DIGITAL DATA TRAILS
There is not enough space here to speak in detail to all these complexities and how they interoperate. However, contract certainty must be an obvious area to pick out. It is by far the most important construct of the relationships between client, broker and carrier. Looking to global risks and global carriers, with clients’ different geographical jurisdictions in play, often under the governance of multiple regulators and then ensuring proper risk transfer has taken place and certainty upon when something has actually come on risk can ever be an easy thing. If as is the general norm, the risk is being intermediated between the local client operation, through a regional broker to the central managing broker and then insurer, one can begin to imagine the opportunities for errors. This being exacerbated by the various parties often operating in differing time zones.
This must be one area where a technology like Blockchain can play a vital role.
Harnessing its decentralised records on a distributed ledger means that there is a single immutable truth, blind to time zones (and office operating hours). Align this to a smart policy admin system and intelligent automated processes instantly solves great swathes of the current clunky touchpoints, creating instantaneous contract certainty and a truly contemporaneous insurance policy. As an example of its effectiveness, back in 2017 AIG undertook a successful experiment with Standard Chartered using Blockchain to streamline transactions through their global programme. Working with IBM, the experiment was successful, as demonstrated in this brief video produced at the time. I’m not sure how this has progressed subsequently, but I hope it is agreed that it is a great signpost to what can be achieved.
Looking a little more broadly there are some other areas where and innovative mindset and harnessing tech can bring about significant improvements. Smart documentation is one, helping create and then index complex legal and contractual documentation. It is the visibility and transparency that helps drive efficient and effective claims responses, guiding those handling them to the right conclusions, quickly, proportionately and at the right quantum. Effective and dynamic communication in real time is now vital. With the speed that business moves and with multiple stakeholders, communicating immediately and without ambiguity is quite frankly a table stake.
Finally but definitely not last is the huge reliance we now put upon possessing accurate and rich data. As others have said, it is the oil that now drives the insurance engine. More so, it is also the fuel that builds risk knowledge which creates better intellect and qualification in decision making.
To close therefore, it has been clear to me for some time now, that in this hugely specialist area of global risk that properly implemented technologies that supports the human knowledge and intervention offers real opportunity to significantly enhance the sector, bringing about better risk certainty, streamlined operations, greater clarity and ultimately better served clients.