Evolving Business Risk Drives Embrace of New Insurance Tech

The financial protection and security that insurance provides is essential to all businesses and the modern economy, particularly in disruptive times.

Any number of risks can threaten the financial viability and survival of a business, and insurance helps to mitigate those risks and make financial impacts more predictable and therefore survivable. Without insurance, a common event such as a truck accident, a flood, or litigation could put an enterprise out of business – or put a sizeable dent in profits.

Business leaders and entrepreneurs rely on commercial insurance as an essential component of their enterprise risk planning. These include common lines such as commercial auto, general liability, and directors’ and officers’ insurance. To put the magnitude of the value that insurance protection provides into perspective, consider that insurers hold more than $11 trillion in assets in the US and more than €9 trillion in the Eurozone as collective savings and hedge against a range of risks.

However, the last decade has seen tremendous change both in the evolution of technologies -- and in seemingly intensifying risk and disruption. The global pandemic has added a new dimension to the risk of business interruption. Increased digitization of commerce and remote work have driven a corresponding rise in cyber-attacks. The growth of social media has increased the threat of potential damage to business reputations. Extreme weather and growing populations have increased property risk in zones highly prone to such events. And a sharp rise in the cost of legal settlements has increased risks associated with litigation.

The frequency, severity, and variety of risks are rising and evolving. Insurance policies, practices and technologies must evolve in turn to meet these challenges. And that’s exactly what is happening, mostly behind the scenes, at leading insurance companies.

Migrating to the Cloud to Build Agility

When it comes to technology, the insurance industry has a reputation as a laggard. It is estimated that insurers only run about 10% of their workload and processes in the cloud. But that is changing rapidly.

Insurers are increasingly turning to cloud-based systems, whether for policy underwriting, claims, or billing. This embrace of cloud technologies enables them to more quickly and effectively respond to operational or market changes.

Cloud systems are more agile -- enabling business changes to be made more rapidly and, in some cases, directly by business users without IT involvement. Cloud systems are also kept current -- fixes and features are made available without a system upgrade project. And cloud systems can accelerate innovation -- enabling rapid deployments to support new products or market launches that speed the insurer’s ability to meet emerging business needs.

Applying Risk Models and Prescriptive Analytics

Such agility will be needed, as the future seems likely to be riskier than the past. Advancing cyber risks, weather events, pandemics, and geopolitical conflicts threaten major disruptions. Gauging the risk and associated costs for such events is much more difficult than for traditional risks such as fires, vehicle accidents, and property damage, where decades of trended actuarial data make the trajectories fairly predictable.

Addressing new risks and estimating potential losses for those risks, requires new approaches to risk modeling and predictive analytics. Insurers have always been at the forefront of actuarial modeling, applying these methods to automotive, property, and liability risks.

However, because emerging risks do not come with trended historical data, insurers have been forced to innovate, particularly in looking for new external data sources and modeling techniques to predict forward losses.

In addition to new data sources and modeling techniques, some insurers are working to directly operationalize analytic insights into their core business workflows to improve decision-making. Insurers evolving from prediction to prescription will ‘close the data loop’ and realize maximum impact from their data and analytics investments.

Innovating with Insurtech

As old business and technology models are being disrupted, those who adapt and innovate will be more likely to find new opportunities for growth.

Meeting the future requires innovation – and insurtechs are leading the way. In a testament to this dynamic, insurtech is one of the hottest growth industries with revenues expected to quadruple in the next five years and a projected annual growth rate of 52% through 2030.

However, with hundreds of companies and ideas to explore, sorting through the options and selecting the right partners for innovation is a major challenge. Cloud-based core systems provide an advantage here, enabling insurers to easily and quickly integrate and test new insurtech data and applications. Further, a knowledgeable consulting partner or an insurtech ecosystem can expedite the vetting process, a significant competitive advantage at such a disruptive and opportune time in the industry.

As we sprint forward into the future, one teeming with new opportunities and new risks, insurance will continue to play a vital role in the financial health and resiliency of our businesses and economy -- if insurance leaders can innovate and adapt to the changing environment.