This article was republished with permission from Insurance Day.
The events of 2017 reminded us all why we are in business. Our industry was able to prove its value in a positive way. Insurers served their customers responsibly, with most executing the fast and fair settling of claims after an extraordinary series of trials by wind, flood and fire.
Through the year, many new insights emerged about the coming shape of our industry. Moving into 2018, four of them appeal to me as deeply relevant.
Nature will force an appropriate correction
When I think back to the confusion and frustration many customers experienced after Superstorm Sandy in 2012 or Hurricane Katrina in 2005, I’m pleased to see how quickly we’ve matured. As media outlets have widely observed, our industry is now able to manage multiple events in short periods. Our improvement as an industry is timely. Predictive climatology suggests that hurricanes, earthquakes, droughts, fires and floods will continue to increase in both frequency and severity.
Melting ice fields at the North and South Poles support forecasts of warmer weather and rising sea levels. Given the density of population and volume of business activity in coastal areas, revised assessments of the nature of catastrophic risk at or near sea level is now prudent.
As claims mount following these catastrophes, rates of insurance and reinsurance will rise and the scope of coverage will contract. While the pressure on pricing, notably in the London market, has been sustained despite all logic, Nature itself may at last motivate the industry to make an appropriate correction.
Competition will increase
The relentless advances of technology will continue to affect our industry across a broad continuum of opportunity. Digitisation has made possible the reinvention of data analytics, process automation, product innovation and service delivery. The resulting improvements and efficiencies will soon prove their value in increased competitiveness and better margins. The size and speed of the impact of technology on distribution is the big question.
As the value chain mutates to reward those who offer real value, instead of those who control access, many aspects of our business will change. It’s reasonable to assume that customer loyalty will be even harder for legacy insurers to secure, as customers migrate to one-stop platforms where they can shop for diverse services, insurance coverage among them. Increasing competition is assured.
Digital arms race will be an unprecedented opportunity
Cyber risks are unique in that they are both unlimited and perpetual. Digital attack and defence are opposing forces in a war of escalation, with solutions even as promising as blockchain becoming prestige targets for hackers eager to make their mark. While we can sense the scale of the problem by examining assaults such as the one against Maersk in 2017, we have no idea of the possible impact of new hacking technologies against multiple smaller entities.
Imagine the losses following concurrent attacks against one million small businesses, the shutdown of every self-driving car, or perhaps just the bricking of every digital door lock. The payouts could be massive, and yet today’s premiums for those small-scale customers in no way reflect the scope of the risk. On the other hand, because the digital arms race will be perpetual, cyber offers our industry one of the most significant opportunities we’ve seen in decades.
New business will emerge like never before
Looking to 2018 and beyond, one thought intrigues me most. As technologies that marry quantum processing speed with 4G and, in time, 5G data speed come online, whole new models and varieties of business will be created. Specialty insurance lives at the crossroads of new ideas and new threats. As such, I’m confident specialty lines will continue to grow in importance as a critical support for new enterprises, allowing entrepreneurs to mitigate the considerable risks associated with early adoption of new technologies.
Today, we talk about advances such as drones, autonomous vehicles, augmented reality and artificial intelligence. These are not merely categories of risk that require expert underwriting; they are themselves engines of innovation that will create new opportunities for insurers who are able to look ahead and are willing to keep pace.
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