The Covid-19 health crisis provokes to a deep reflection on the insurance and reinsurance business. Numerous topics are being discussed again such as catastrophic risks, digital transformation, crisis management, teleworking.
Insurance: market evolution requires digital transformation
Many topics have emerged in 2020 in the insurance industry during the unusual time of Covid crisis that hits the whole world.
The industry players across the world have shown a lot of resilience and in order to face better the crisis, they have put more efforts and time on implementation/reflection on digitalisation or digital transformation, big data, data analytics and Risk management/loss prevention, etc.
Digital transformation has become more than ever in today’s context the topic and project that insurance companies have embarked or are embarking on. Digitalisation enables insurers to improve operations efficiency and management of companies see technology transforming the front-end of their businesses, enhancing customer relationships and boosting growth.
It is not only an IT transformation; it is also a mind-set and people’s transformation that is happening on both sides of the insurer’s and the policyholder’s.
Creation of structured data base are made easier through digitalisation. We have been reading for the past few years a lot about the era of big data and in particular big data analytics in insurance.
In many emerging markets, there are lines of business with high numbers of insured which has important impacts on the insurer’s balance sheet that show little profit or are unprofitable. For instance, it is the case in medical or motor insurance. These are however lines of business where in terms of numbers it is the highest and therefore should generate a good risk pooling. The losses are often due to fraud and or non-adapted covers to the insured.
Insurance: big data at the heart of digital transformation
There is therefore a requirement for the insurer to do further analysis on its portfolio and data analytics is the tool that will help them in this. The use of Big data analytics in insurance assists indeed in the insurer’s ability to assess the risk better, assess the client needs and therefore enhancing customer’s satisfaction. It does also assist in giving a tailor made cover to the customer.
In addition, data analytics helps reduce the rate of fraud and simplify complex cases which for the insurance company reduces their claims ratio but also their expenses. Of course, we have understood that this depends on the data and more importantly on its quality.
Insurance: digital transformation as a tool for data standardization
In the context of reinsurance and as the renewal season is approaching, insurers are constantly being asked by their reinsurers to provide more underwriting and business information based on captured data.
There are still companies that use spreadsheets and/or a multitude of systems to administer their ceded reinsurance. It is not always obvious to receive the information that is needed. With the further acceleration of digitalisation, we are confident that the insurers who are lagging behind are shifting or have shifted to an efficient IT systems.
Data renewal information is paramount in reinsurance renewal as all the analysis that leads to the structuring and pricing is based on the renewal information that is provided. In this respect, renewal packs often differs from an insurer to the other. They not only differ in terms of format but also in terms of content.
In terms of content, we can name for instance the importance of Cat figures and related analysis such as Cat modelling results which unfortunately are not always provided or not available for cat exposed markets. It is not only important for the pricing but also to enable both the insurer and the reinsurer to follow up and control their accumulation.
Reinsurance brokers play a big role in this as very often, they are the ones assisting insurance companies in the formatting and the analysis of the data for the reinsurers. The business model of reinsurance broking has indeed evolved fast over the years, with cedants now demanding everything from the analytics software and risk modelling support to of course the placement.
As part of the transformation, shouldn’t we be looking at standardisation of data and formats that would help both insurers and reinsurers define adequate T&Cs, that would include all clauses and wordings as well, and build a further resilient and sustainable industry?
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