When I reflect on the insurance industry and the conversations that we have with leading companies’ executives, it is not long before two key trends emerge and then dominate the conversation – innovation and regulation. How companies view these – opportunities?, challenges? – may determine the winners and losers of the future. Our latest issue of Frontiers in Finance focuses on these topics, gives a global perspective and inevitably leads one to ask – how will these trends play out in the Swiss market?
Why risk culture matters
One observation is that the focus of international regulators is shifting from the banking field to insurance. And one way this is impacting is in an emphasis on risk culture, and the difficult question of what the insurance organisation’s lived attitude to risk really is. This goes to the heart of how organisations behave:
- What is the tone at the top of the company?
- How is the company’s risk appetite cascaded to all operating levels, embedded in people’s daily routines and decision making (a key part of the ORSA process)?
- How is information on risks and loss events communicated internally in such a way that the organisation as a whole can learn and improve?
- How do companies respond when things go wrong?
Regular reviews of these sorts of issues will give Boards, stakeholders, regulators and customers greater confidence in the overall integrity of the company – leading ultimately to a competitive advantage.
Driven by data technology
Data technology can be used to help assess a company’s risk culture (data analysis can reveal patterns of customer complaints for instance), but this is just one way in which the digital revolution can be harnessed to gain a competitive edge. A second key observation is that a digitally inter-connected world (the Internet of Things – IoT) will utterly transform insurance. Automated cars, home monitoring systems and wearable devices – all of these and more will change the protection needs of customers, enhance insurers’ ability to assess risk, and accelerate ‘pay by use’ insurance models. As the world changes, so insurers must innovate. We see larger companies investing in Fintech companies, perhaps in an attempt to kick-start transformation. But really change will be so complete that no process will be left untouched: sales and marketing will be contactless, pricing and underwriting will be less judgemental, claims servicing will be immediate and IT capabilities will have to be revolutionized.
The successful company will be looking at those products which will in the medium term be obsolete and at areas where new products will be demanded; it will be reviewing how IT capabilities can respond to the wave of data now needed; and it will invest in IoT labs and work with partners outside of insurance.
Twin forces: innovation and regulation
Globally, insurers have been slow to embrace these changes – they are risk-averse and intolerant of failure. Swiss insurers maybe disproportionately so. But at some stage, changes in the way we behave will be reflected in what we demand of our insurer, and then you need to be ready!