The insurance industry needs to fundamentally reinvent itself and use technology and data intelligently to create bespoke and expansive insurance coverage for its clients.
That is the view of Sara Ager, chief executive at GreenKite Associates, a consultancy for the re/insurance industry, speaking to APCIA Today.
Ager warned that the insurance industry faces a huge challenge around customer trust, exemplified by the high profile disputes around pandemic coverage in business interruption (BI) policies. To overcome this it needs to show it is there for clients, rather than looking to exclude as much risk as possible from the policies it sells.
She warned that insurance buyers may suffer similar nasty surprises in the event of a large scale cyber attack. Insureds could believe they are covered by their cyber policies, only to find they had not spent enough time reading the small print.
“Do people take cyber coverage because they know the policy suits their needs or because they think they should have some cyber coverage?” she asked.
“If there is a big cyber event, will all these policies pay out as customers expect? I’m not sure they will.”
Ager believes this would be irresponsible and ultimately self-harming for the re/insurance industry. “The insurance industry should be about protecting societal risk and offering greater financial resilience,” she said.
Insurance companies writing BI policies should start from a position of assuming that any unexpected eventualities will be covered by a policy, Ager argued.
The onus should not have been on customers to figure out they needed pandemic protection before the COVID-19 outbreak, the onus should have been on insurance companies to ensure their customers were protected.
“This isn’t about sitting down with clients and asking if they want pandemic coverage, it is about creating a BI product that is more expansive, and telling customers they will be protected if anything unforeseen happens,” she explained.
Ager acknowledged this would have implications for the cost of insurance, but argued insurance buyers would ultimately be more satisfied with a better product, even if it cost more.
“Insurers can be more customer-centric and still make money,” she insisted.
“Insurers should get back to competing on proposition and value-added services.”
Sara Ager, GreenKite
“In the past insurance wasn’t only about price—price aggregators have helped change the focus,” Ager added.
“Insurance used to be about service, and insurers should get back to competing on proposition and value-added services. Increasingly people want to use and be associated with brands that align to their values.”
Parametric leading the way
Ager pointed to the progress parametric insurance has made in recent years as evidence this kind of change is possible.
“Ten years ago the idea of parametric insurance would have seemed mad,” she said. “Now it is leading the way, offering simple, granular risk protection. Insurers need to continue the trend, by offering parametric cover in a more sophisticated way.”
Ager noted that the reinsurance industry is better insulated from the problem than the insurers who deal directly with the public, but argued reinsurers are nevertheless best placed to lead the broader re/insurance industry as it reinvents itself.
Reinsurers have the granular data and are already sophisticated in the way they use data to profile customers and products, she noted, but this has not yet fed down to insurers.
“It is the re/insurers with insurtech and parametric businesses that have the greatest opportunity,” Ager added.
Ultimately, she believes, insurance will be dragged to this new way of delivering business if it does not change willingly.
“The purchasing power of society is what will lead this change, whether insurers are reluctant or not.
“Customers will demand better treatment, so insurers really have no option,” she concluded.
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