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Trust and credibility critical to avoiding insurance innovation “organ rejection”

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Topics: InsurTech Topical Trends

The perspective of the outsider is a key factor in driving impactful innovation in the insurance sector, but there must also be a level of trust and market credibility to avoid disruptive technology “organ rejection”...

This was the view of a panel of leaders in the field of insurance innovation at the Marsh McLennan Rising Professionals’ Global Forum.

In his opening remarks, Rafal Modrzewski, CEO, Co-Founder, ICEYE, said innovative technologies can play a key role in helping strengthen the trust which underpins the insurance industry’s promise to pay.

“There is no other industry as dependent on the ability to generate trust in my view than the insurance industry,” he said, adding that innovative technology and in particular the data that it can deliver can play a big part in enhancing the level of trust between the insurer and its customers and partners.

“If you look at the data that innovations such as satellite imagery can generate on catastrophes anywhere in the world that is ‘truth data’. With that truth data you are able to enhance that level of trust that is so critical to the insurance relationship.”

The challenge however is how you bring such innovations and technologies to the market in a way that practitioners will accept and that will enable effective integration into the insurance ecosystem.

Panel chair Daniel Stander, Senior Advisor to the United Nations Development Programme’s Insurance and Risk Finance Facility, posed the question: “What is the right way to approach innovation – outside-in or inside-out? That may be a false dichotomy. But, given the symbiotic relationship between risk finance and socioeconomic development, it behoves us to find a better approach – especially for the vulnerable”.

“We need to have enough credibility to demonstrate our understanding of and our relevance to the insurance sector,” said Lisa Wardlaw, Global Head of Insurance, Geosite. “But we also have to be nonlinear in our approach so that we don’t view our role as simply replacing or swapping out parts of the insurance process.”

“A key issue is what I refer to as innovation organ rejection. We've got this really healthy organ, whether that’s space technology or parametric products, and we are introducing it into what is a healthy patient, whether that’s an individual carrier or the wider industry, but for some reason antibodies are released and rather accepting or adapting to the introduction of the new organ, it is simply rejected.”

Sid Jha, Founder, Chairman and CEO, Arbol, believes that the different mindset of the outsider is key to moving the industry forward.

“A big factor in Arbol’s success is that we are not shackled by legacy. There is benefit to tradition in the insurance market,” he said, “but it also holds it back. If you look at parametric insurance, the market was small and static for a long time. It needed an outsider, people who bring an alternative mindset because the insurance industry mindset is very different. The goal for us was to frame alternative technologies, alternative datasets, and very importantly, alternative capacity.”

For Ola Jacob Raji, Broker Success Manager, Floodflash, the key to successful market innovation is bringing multiple perspectives to bear on the challenge.

“It’s about having a diverse group when you’re looking at the problem,” he said. “For it’s not so much about an outside in or inside out approach. You want to have as many skillsets as possible looking at the problem so that you can reach your goal as fast as possible.”

From a computer science background, he had previously studied the psychology of how humans interact with technology. Applying that perspective to innovation in the insurance arena, he said: “You look at how people are interacting with that process and try an infiltrate with technology in a way that doesn't interrupt,” adding that, “too often that human element was simply missing.”

Expanding on the theme of organ rejection, Mr. Stander said: “What really interests me is the cause of the rejection. Is an innovation rejected for behavioural reasons? Or because the business processes don't support the step change? Or is it rejected because IT systems are so unwieldy, so hardwired that, even if behaviours, processes and regulation can absorb an innovation, the legacy tech cannot?”

Turning to the panel he asked: “In the face of increasing climate risk, we must address this tendency for ‘organ rejection’. So, ought we work with it, and try to find surgical, incremental improvements? Or might a totally different, more radical, disruptive approach succeed?”

For Mr. Jacob Raji, there was only one option for the industry. “The market has no choice but to be revolutionary. Take climate change for example which is almost out of control. We have approximately $70bn of flood damage that is occurring on an annual basis and that is only getting worse. Most of that is uninsured, so we need to be finding new ways to insurer that risk in a much better way.”

Talking about Arbol’s approach, Mr. Jha said: “We decided against being incremental as it would take way too long to convince the industry. When you talk about innovation in insurance, this is not a business where you just put out a new software product. There has to be capital behind that software product. There are significant amounts of risk deployed on that software system. So, we had to ensure that we captured the whole process – from the data right through to the capital.”

Seizing on how satellite technology can play a critical role in enhancing the level of trust between the insurance and capital markets, Rafal Modrzewski, CEO, Co-Founder, ICEYE, said: “Imagine how different the process of sourcing capital would be for insurance if you are accessing technology that can tell you what is happening around the world at any time? You could establish a completely new level of trust between the insurance and capital markets where you can use satellite technology to tell them where a disaster is going to happen, and even predict it, as well as what has happened and show how this will enable you to manage the impact much more efficiently.”

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