Corporate insurance faces ‘radical’ change

Automation (robotisation) and connectivity are fundamentally reshaping how manufacturing and service industries work – which will in turn radically change the risks they face and the way they buy risk coverage, according to a new report titled “The underwriter of the future – Six years on” by Oliver Wyman and the Chartered Insurance Institute.

Among the changes are shifts of risk, the report notes. Automation of manufacturing should fundamentally reduce operator risk as safety improves – but there will be corresponding increases in product-defect types of risk (and a shift from B2C exposure to B2B), according to the report.

In addition, technology should enable better risk protection and fewer claims, at least for high-frequency/low severity losses – but may render historical loss trend/development data invalid.

Furthermore, interconnected systems will introduce new, highly concentrated risks – driving demand for new types of “liability catastrophe” cover but requiring new and as yet radically untested loss models, the report notes.

Finally, existing legal frameworks may not (yet) be sufficient to determine liability in complex cases, potentially driving up the complexity and cost of obtaining cover.

While machines will not take over all the analytical tasks the corporate risk underwriter undertakes today, there will be real need to use far more data driven analytics and sophisticated modelling to improve outcomes, the report notes.

This will require a statistical mindset – but also a deep familiarity with data engineering approaches to stop using legacy data structures and IT systems as an excuse for poor practice.

The underwriters that first work out how to put sophisticated and ubiquitous sensors to work to genuinely understand, predict and manage risk cost will benefit enormously, the report states. And the underwriting leaders who manage to get ahead of the curve in deploying newer, more flexible technology effectively will increase the efficiency, effectiveness and profitability of their operations, the report says.

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