In this piece Matt Carter, Practice Director, Specialty Insurance Altus Consulting, takes a look at standards and how it affects data.
Much has been written about the London Market transformation programme Blueprint 2 and not much of the activities being performed are truly visible let alone tangible, but one should not dismiss the reality and challenge of replacing 30-year-old technology, which in itself is seismic. Unless your view is the owner of such old technology should never have taken the money and not reinvested it when the world was clearly changing so much around it.
But the one element that has also taken a long time to align and agree has been the Core Data Record or CDR, this is the beginning of the landscape across the whole London Market changing to lay the foundations for a digital first market.
Standards deliver alignment and alignment delivers efficiencies
What is the biggest contributor of shifting the digital needle, has been the need to agree standards, these standards allow more market wide systems to work together. Standardised data promotes consistency in data exchange, simplifying processing and helps businesses to derive greater insights.
By ensuring completeness and accuracy, data standardization helps businesses also avoid rekeying, this has been the cottage industry the London Market created and allowed to persist for decades.
Standards are not new
Insurance has used standards for many years, largely driven via Acord, such standards have been commonplace in most markets outside of London and those in London trading in the US were already well versed in the reality and benefits that standardisation delivers. But it has taken a decade or more for the Lloyd’s part of the London market to accept that the nuances of Lloyd’s isms help no one.
It has been signposted for a while the benefits standards delivered to banking through open banking, ignoring the level of complexity of these messages. The fact that standards existed and were accessible has created new businesses, new propositions, and better value to their customers.
In banking as well as financial securities, data standardisation has led to improved data quality, interoperability, transparency, and regulatory compliance. Financial institutions have been able to streamline operations, reduce errors and costs, and enhance risk management and regulatory reporting capabilities. These outcomes are exactly what the London market urgently needs as it looks to move away from being perceived to be overly regulated to a more open and outward facing market, highlighting its ease of doing business and removing some of the expense burden of placing business into London.
Back office can be the new front office
Back offices in the Specialty Insurance Market have existed in part to manage the in-take of data in one form, from any one of its partners and convert it, structure it and check it, to then pass on to any one of its other partners,, a schedule of risks from Argentina added to the quota share programme to be passed on to a reinsurer in London.
But the role of data over the last 5 years has moved from necessary and challenging to vital and strategic, the back office should provide the tools to effectively share and receive data, ideally through APIs, more on those later, and the insights to drive future decision making. Added to that ensuring the businesses regulatory and compliance requirements can be met and making it easier to both report and audit company activities.
To achieve this ‘happy place’ one of the major hurdles has always been around data quality, ensuring data is both available and accurate. Standards can largely remove this issue in one, by eliminating inefficiencies arising from data discrepancies and making it easier to share and receive relevant information. Combined to that, standardised data and technology can seamlessly process, analyse, and utilise information from various market participants leading to a reduction in processing costs.
This then takes us on to the role standards support in helping business build the right data culture, with less time spent cleaning data more time can be spent using the data, this requires ensuring that across the business the right skills and behaviours are understood to understand how data fits and feeds into the business and how it can be effectively used.
How will standards impact pricing and risk selection
The view could be that standards just creates a very low baseline and all risks become homogeneous and as a result personalisation, coverage differences and price variation disappear. Whilst this might be true of the broader customer facing products. Specialty insurance and the standards being adopted cover mainly basic risk details and information related to accounting and settlement, but it is a start.
The customer generally benefits where standards are applied as businesses must work harder to look for areas of value and uniqueness to set them apart. The reality of insurance businesses forming different opinions based on their own busienss drivers about the same risk is what has and will remain the primary basis for competition. Standards just make this assessment slightly easier.
Ultimately automation driven through the adoption of standards enables intelligent decision-making, dynamic risk assessment, and personalised underwriting, significantly improving the customer experience.
As a potential use case for the benefit to insureds at renewal. With the majority of core risk data now being ‘standard’, the barriers to being able to change markets easily at renewal becomes less and the potential to see solutions that support automatic market switching might evolve. This opportunity is only possible through the use of data standardisation to allow ease of data exchange.
In time with even more data available and in a consistent format brokers or insurers will be able to tailor or optimise pricing models with more accurate and granular risk assessment and risk exposure evidence. Ultimately lower operating costs and in turn reducing customer costs.
APIs are the game changer
Standards around the Master Reform Contract (MRC) the broker part of the process and the CDR the insurer side is just the start for speciality insurance businesses, it is how you use this data connecting external third party data, enriching and analysing through the use of APIs is where the real value lies.
This is where the back office and the connections it makes and surfacing ever more rich data to underwriters and proposition builders will start to uncover opportunities and drive innovation. No article, conversation or seminar these days doesn’t talk about AI, so it would be remiss to ignore it, but in short AI works best with large amounts of quality data, the role of standards here creates the right foundation to benefit from the opportunities AI enables.
Boring standards drives fantastic opportunities
So by using standards in the back office and simplifying the routine, improving compliance and delivering better insights. The foundational layer has been set to focus on the more interesting outward facing activities, innovative propositions, better product market fit or reducing exposure (now the exposure is really understood).
Businesses must enhance the use of APIs and realise the value of the power of connections has to uncovering valuable insights and enriching the data delivered through the new and now understood data front door.
It is only through the boring stuff can the reality of establishing a baseline to be better, faster cheaper be delivered, once that is done that is where you will see those that can innovate and be different and those that frankly just can’t emerge.
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