P&C market must innovate if it wants to compete

Manoj Kumar, group chief executive and managing director of MNK Re, outlines how the insurance industry must embrace transformative technologies such as AI to aid risk modelling as well as inform customer insights for tailored coverages – or risk being left behind.

The insurance industry – and institutions such as the London market – are often seen as highly traditional and slow to adopt innovative technologies or new ways of working. However, increasing competition means the industry is now modernising at speed.

The swift adoption of AI is today helping firms issue payments to customers, detect fraud, provide better service to customers and price their products more efficiently.

For the P&C market, rapid change has been made necessary by the significant challenges posed by climate change. The number of catastrophic climate-related events taking place each year is rising with global temperatures, with demonstrable increases in heatwaves, droughts, floods and rising sea levels leading to more loss of life, property damage and population displacement.

If the industry does not address these challenges and embrace the role that technology can play, it will undermine the strength of the market, and compromise its ability to help clients through challenging periods.

Yet if the industry is able to offer reliable, affordable protection against the impact of climate change, insurance will play a vital role in promoting global economic stability.

Achieving this will require focus on how technology can be used to drive efficiencies, develop a more detailed understanding of customers and gain a better insight into how future risks will develop.

Technologies for risk modelling and customer insights

As systemic disruption becomes a more acute risk as global temperatures rise, one of the first areas the industry is assessing is risk modelling in order to account for the growing number, type and interconnectivity of risks.

For areas with a low penetration of property insurance – generally countries with less developed economies – this is an especially urgent task. Failure to meet this challenge will leave brokers stuck using low-quality data and unlikely to capture the full spectrum of potential losses that they face.

AI offers a potential solution to this problem, as its ability to analyse big datasets and automate processes means it offers brokers significant advantages in terms of reducing costs and improving decision-making.

As AI and machine learning models streamline and standardise processes, they will help brokers deliver operational enhancements and improve their customer service.

As well as improving the market’s access to data on risks, technology is also allowing it to understand customers better. Technologies such as the Internet of Things (IoT) can give firms access to behavioural insights and more granular data on customers. Used effectively, this data can support better decisions, made faster.

The IoT can provide access to important data on consumers’ location, environment and mitigation measures, which makes it easier for brokers and underwriters to tailor insurance packages to specific needs.

Flexibility from innovation

In adopting these new technologies, the industry is increasingly being freed from the limitations of old systems, and is more flexible, agile and responsive to changing customer needs.

Insurers are more able to fill the gaps that traditionally they have found it difficult to plug. Innovative products and new ways of paying out claims (such as parametrics) are evidence of this trend, while policyholders are insured against an event of a set magnitude, rather than the value of their losses.

New, innovative and climate-focused products like parametrics are crucial to making climate risk manageable. It has been important for agricultural clients, who are particularly exposed to changing weather patterns. A hybrid of traditional indemnity and parametric cover is often an effective approach.

It is an exciting time to be in the insurance industry; the rise of technology and the success of technology-based approaches means that change is taking place rapidly.

Those in the industry who benefit most will be those who are adaptable, and who take positive action to integrate new technology into their processes. Anyone who refuses to engage risks being left behind.