How digitalisation will change your risk profile and the insurance broking model

 Technological advances are transforming risk management, bringing new and complex risks for businesses.

Speaking to StrategicRISK ahead of the panel debate on ‘insurance tomorrow’, Laurent Rousseau, deputy CEO at SCOR says: “Technology enables a better understanding of risk and how quickly will technological progress allow us to find new measures to appreciate risk in a more granular way, pushing mutualization boundaries.”

However, these technologies are also exacerbating traditional risks, which in the digital era, can often present under a new guise. The emergence of driverless cars is a good example of this, says Corinne Cipière, managing director, market management at AGCS, who explains that the risk profile includes liability risks that could implicate the driver, the manufacturer and car engineers.

Interconnectivity

The growing connectedness of cyber threats is another trend keeping risk managers awake at night. Cipière explains that the more companies rely on advancements in technology and remote access to the cloud, the more they become vulnerable to new risks. And the impact could be significant.

She says cyber is at the top of AGCS’ risk barometer and is high on many risk managers’ agendas, because the threat has a global reach. “It tops the list of concerns for risk managers because it can hit anytime, anywhere.”

Rousseau agrees that the interconnected nature of cyber risks is problematic. He says: “Intangible assets (brand, marketing, image or software) have grown way more than tangible (physical, industrial) assets in the past 15 years. Software is taking-over the world.

“The physical risks are increasingly better known, and with the Internet of Things and sensors we will, at some point, be able to track the ageing of buildings and factories. We will be able to track and even better prevent physical damage much more. But the non-physical damage on non-physical assets is the key thing.

“The nature of risks will change and risk managers will have to be much more familiar with IT systems and tech, and with contingency planning instead of direct physical damage: business interruption risks are taking over from physical damage.

Disintermediation

Insurance brokers are also feeling the impact of digitalisation – but it is their operating models that are coming under threat. Prospect customers are increasingly turning to aggregators and comparison websites to buy personal line insurance. Rosseau argues commercial insurance could potentially move in a similar direction and threaten the survival of small brokers.

“The tech revolution is a huge challenge to the value of intermediation,” he says.

“I started my career in capital markets, on trading floors, where people would say stock broking was all about relationships. But, today it’s all about electronic trading. Notwithstanding fundamental differences between insurance and finance, one can wonder what the future of insurance broking is.

“This is how you can interpret the Willis Towers merger, Aon Group strategy, and the all the efforts from brokers to become consultants and to move away from purely transaction-based relationships.

“It has already started in motor and homeowners’ insurance, where new sales increasingly transact online. The question is how fast, and in what way, will disintermediation move up the value and risk chain: starting with SME risks.”

Risk managers will have to be much more familiar with IT systems and tech, and with contingency planning instead of direct physical damage: business interruption risks are taking over from physical damage.

However, he argues that this evolution will be extremely slow as brokers hold the market and their influence keeps growing.

Cipière agrees that there will be disruption but thinks that there will still be a clear role for human and broker interaction.

She says: “There is always this question whether all this will replace human beings. I don’t have a crystal ball - but one thing that strikes me as a key fundamental is trust.

“For insurance business, companies pay a premium with the promise that one day if things go wrong, someone will be by their side helping them to recover and get back on their feet. That will still require elements of empathy and human being touch and client experience.

“It’s true that internet brings capacity to compare solutions. But when it comes to buying the solution, they usually want to have contact with somebody to discuss it.