InsurTech is Advancing at an Ever-Increasing Pace: Fear of disruption was pervasive early in the “InsurTech” era, stemming from indications that major …
CAT-i Bulletin: Hurricane Dorian: Hurricane Dorian was a long-lived and historic storm that rendered impacts from the Caribbean to Atlantic Canada between August 24 and September 7. It is evident from media reports that the most severe impacts occurred in the northwestern Bahamas where complete destruction of property and infrastructure was reported in Grand Bahama and Abaco Islands. The full scope and severity of impacts still has yet to clarify, but it is apparent that conditions on the Islands will be very difficult for some time.
Looking Beyond the Clouds: A Cyber Insurance Industry Catastrophe Loss Study: Because it is essential to develop a deep understanding of the characteristics of cyber catastrophe events and the financial impact they could have on the standalone cyber insurance market as it exists today, CyberCube Analytics and Guy Carpenter collaborated to help (re)insurers quantify cyber risk by pooling data resources and analytics capabilities to cultivate a view of the potential U.S. cyber industry loss from a range of different cyber catastrophe scenarios.
IFRS 17 and the Value of Reinsurance: An Opportunity in the Challenge: International Financial Reporting Standard (IFRS) 17, issued by the International Accounting Standards Board, is the new financial reporting standard for insurance contracts that will replace the current rules of IFRS 4 and will become effective on January 1, 2022. IFRS 17 will impact the insurance value chain far beyond the areas of actuarial modeling and financial reporting. Key aspects of strategic and operational management may be affected. The new rules for reinsurance may have numerous unintended consequences and some traditional reinsurance products may require modification in order to remain highly effective as capital and volatility management tools.
InsurTech is Advancing at an Ever-Increasing Pace: Fear of disruption was pervasive early in the “InsurTech” era, stemming from indications that major technology companies were entering the sector, such as “Googlezilla” in 2014; Apple’s telematics focused patent activity; and more recently; Amazon’s exploration of insurance aggregator opportunities in the United Kingdom. More current and pressing challenges to incumbency stem from new entrants such as Metromile’s usage-based telematics insurance platform; Lemonade’s big-data powered digital experience for homeowners and renters coverages; and an innovative personal auto telematics-enabled underwriting process at Root Insurance.
Structured Capital Partnerships; An Evolution of the P&C Reinsurance Business Model: Over the past two decades, alternative capital has grown to represent almost a quarter of the total reinsurance industry capital. Insurance-linked securities (ILS), sidecars and collateralized reinsurance continue to provide valuable capacity to (re)insurers, corporates, and public sector entities to efficiently manage capital and risk alongside traditional market solutions.
My wife and I recently had our first child. While I had difficulty quantifying the value of insurance products for myself when I was single, I can now see clearly the value of insurance products to the security of my family. I thus joined the growing population expected to be more open to investing in right insurance products. The Philippine Insurance Commission also expects the same, given that insurance companies are now creating more products tailored fit for their consumers’ specific needs.
On a global level, based on the responses from 140 insurance industry leaders who took part in PwC’s 22nd Annual Global CEO Survey, 70 percent of insurance chief executive officers would rely on operational efficiency to drive growth, while 72 percent believed organic growth would improve profitability. These results showed renewed emphasis on efficiency and cost reduction to free up resources, thus creating more products that would be targeted for their consumers’ specific needs.
Furthermore, the CEO survey results also showed a growing interest in InsurTech capabilities, which the Philippine insurance industry has. As Philippine Insurance Commissioner Dennis Funa said, “Technology or insurance technology, what we call ‘InsurTech’, is changing the industry almost imperceptibly. It is not happening in one big crash, but in small steps everywhere.”
Given the similarities between the results of PwC’s 22nd Annual Global CEO Survey and the positive findings of the Philippine Insurance Commission on the potential growth of the global and local insurance industries, what is then holding back the insurance companies to succeed?
As highlighted in PwC’s CEO survey findings, the shortage of people with the right skill sets is one of the factors that currently inhibit innovation and growth. While technology often dominates the transformation agenda, success ultimately hinges on finding and utilizing the right people. It is therefore troubling that 81 percent of insurance CEOs were either extremely or somewhat concerned about the impact of skills shortages on their growth prospects. Based on other global surveys, shortage of people with the right quantitative expertise is also holding back insurance companies from complying with new regulations and upcoming accounting statutory requirements, such as International Financial Reporting Standards (IFRS) 17.
If you are an insurance executive, how can you then acquire the best and brightest, and retain these talents, to succeed? In my view, there are four essential priorities in the form of the word MOVE for you to consider.
Since talent drives success, fostering the right culture that maximizes talent is a must – a culture that not only inspires your existing workforce, but also continuously builds or acquires the necessary skills for your insurance company to innovate, meet client demands and succeed.
As you look to foster the right culture to maximize and develop your work force, PwC’s own experience highlights how making the most of and upskilling your existing staff can be highly effective and motivational. We constantly assessed our workforce, found opportunities to enhance our collective digital skills and knowledge, made investments to upskill ourselves and cite noticeable improvements not only in our people’s competence but also in their morale.
Personally, I also assessed my team, who started as math professionals with limited work experience, and upskilled them to fill the skills gap within the insurance industry. Our team can now do advanced data analytics, develop our own impairment tools and is updated on which global systems can be used to meet IFRS 17, IFRS 9 and other regulatory and business requirements.
The next key to success is determining what your insurance business does best, and organizing your workforce and other resources on the specific capabilities that will continuously increase your customer base.
In the short term, your insurance company might be the best in cost or pricing competitiveness. However, it’s also important to look at the right innovation or InsurTech in risk prevention and customer experience. That will help your workforce transition to the future state not only commercially attractive, but also meets future regulatory requirements. For example, under IFRS 17 and US Generally Accepted Accounting Principles (GAAP) Long Duration Targeted Improvements (LDTI) requirements, best estimate cash flows (or probability-weighted cash flows) are needed to meet these accounting standards. Management is also interested with cash flows and will likely demand for more insights as part of the management reporting framework.
Planning and organizing your resources now to scrutinize these accounting requirements will give your workforce, especially the actuaries, more time to properly design, develop or buy, test and implement the future state of your company’s management and statutory reporting systems.
Based on the results of past and current PwC’s CEO surveys, insurance is also one of the global economy’s most disrupted sectors. The rapid pace of technological change and shifts in customer behavior had led to a new wave of competition many insurance companies found threatening. This is why more than 80 percent of insurance CEOs answered that their companies either had ventured into artificial intelligence (AI) initiatives or would do so within the next three years.
With the constant shift of customer demands for more customized insurance products, it is only a matter of time when many legacy systems will fail to meet customer demands. It’s therefore important to simplify, selectively decommission these legacy systems, shift the data and venture into new technologies that include, but not limited, to AI, blockchain, cloud or Software as a Service (SaaS), robotic process automation and intelligent process automation.
Finally, insurance companies must also be able to execute change management to cope with the growing pace of change within the market. It’s important to revisit how change is managed, how plans are designed and how budgets are established; and move away from old-style implementation marathons in favor of an agile transformation.
The insurance industry is ripe for change, growth and success. Not all are winners, though. Those who will win are those who MOVE ahead of their competitors.
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Jonathan L. Uy is a director with the Risk Consulting practice of PricewaterhouseCoopers Consulting Services Philippines Co. Ltd., a Philippine member firm of the PwC network. For more information, please email firstname.lastname@example.org. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.