Gordon Burrows, Pro MGA Global Solutions Head of Solutions and Compliance, shares his thoughts on how technology is shaping the frontier of insurance and helping drive development for MGAs

There is no denying that technology has changed the way insurers and MGAs operate, making processes smoother and more efficient; however, it is the continued pace of development of technologies such as artificial intelligence (AI), machine learning, the Internet of Things (IoT) and the collective array of smart devices that are causing the most profound and swift changes to our sector, especially when it comes to underwriting.

For the first time ever, insurers are able to analyse data in real-time – and this breakthrough is now becoming mainstream across insurance classes. From car telematics to wearable tech like smart watches, and IoT devices in homes and commercial buildings, up to drones in satellites: the once one dimensional world of data has been transformed into something that now allows insurers to better understand their customers and their risk profiles, meaning products and services can be targeted and priced more accurately.

The impact of these technologies doesn’t stop there however; they are fundamentally transforming the way insurance works. Just take the rise of parametric insurance products, which automatically pay policyholder claims when a predefined event, such as a hurricane or earthquake, occurs.

Then there are innovations such as digital platforms, which are enabling MGAs to partner seamlessly with different distribution channels and reach a wider audience. Such collaboration means customers now have prime purchasing power, not to mention access to more personalised products and services via self-serve functions or at the point of sale, as is the case with embedded insurance.

This article was published in The European Financial Review and is shared with the kind permission of the publication.

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The insurance industry has a relatively straightforward role: to build the resilience of society by providing a financial backstop for individuals and businesses if the worst should happen and they need it most. Putting this into practice in today’s landscape, however, isn’t always a straightforward exercise.

From the impacts of economic and social inflation on both an insurer’s financials and the cost of the claims they face, the consequences of the climate crisis, and the insurability criteria of emerging risks such as cyber, there are numerous headwinds that are impacting the outlook for this economically critical sector.

To overcome these challenges, insurers are practising what they preach, and focusing on their own resilience – from operational resilience to financial and regulatory resilience – and there is a concerted drive in the industry to embed the right tools and skilled personnel exactly where they are needed within an insurance operation.

The starting point for any insurer on this road to heightened efficiency has to be that of regulatory resilience, especially in the form of environmental, social and corporate governance (ESG). While ESG has been on the agenda for some time, we are now entering a period of increased scrutiny from multiple stakeholders, where ESG credentials are being likened to that of the historic Kitemark accreditation. Not only do they act as a reflection of your company ethos and culture, but they reflect the behaviours, actions and ethics of your clients and business partners as well.

The talent war
The benefits of adopting ESG measures should not be underestimated. For those seeking to work with the very best companies, not to mention the very best of the talent pool, meeting ESG requirements is critical.

As many will note, encouraging new talent into our industry is an uphill struggle. This is because our world is changing; it has become more complex, more focused on technology, and as a result the traditional insurance model has evolved. Underwriting is now intricately woven with coding, data is now science-based, and risk mitigation is interlinked with predictive analysis.

The rise of technology has also flattened many steps for career progression, not only by removing the need for separate divisions within corporate structures, but by reducing employee numbers as well.

The combination of all these elements means insurers need to do all they can to secure their future workforce, and adopting ESG standards is the most obvious step to achieving this. The fact of the matter is that today’s generation is seeking employment with firms that are ethical and honest. A fancy website won’t cut it anymore; they want substance, transparency and opportunity. And let’s face it, having ESG at the heart of your business operations is simply good practice anyway.

No company is an island
The changing nature of many company blueprints isn’t the only structural shift happening in the industry. The rise of insurtechs and the need for technology to achieve a step-change in customer delivery in a cost-effective way is one of the many battlegrounds the industry still has to master. To succeed, insurers need to be nimble in the face of customer demands, and for this they need the right technology. No matter what size territory you are working in, only those businesses which are adaptable and have speed to market will succeed, and partnering within a digital ecosystem is a tried and tested method to ensure this outcome.

A fundamental part of the industry’s digital transformation – a move propelled by the pandemic, the changing nature of consumer buying habits and the rise of the insurtech – digital ecosystems provide a platform for insurers, tech providers and MGAs to work together, to enable access to new markets, territories, technology and distribution methods that would have otherwise been out of reach.

Unfortunately, the current turmoil surrounding insurtech investment stemming from March’s collapse of Silicon Valley Bank is likely to impact the success of new insurtech start-ups for at least the coming months. However, there are many established insurtech businesses that still enjoy sustainable growth in the market and are committed to remaining crucibles for innovation.

In time, the insurtech sector and its investors will bounce back. But, for insurers and insurtechs navigating the choppy waters ahead, seeking out trusted and established ecosystem partners who know the market and can offer such varied and expert support from different practitioners from both within and outside the industry is key. Whether in pursuit of new products or distribution models for brokers and MGAs, ecosystems essentially allow insurers to be nimble in the face of changing consumer demands.

One such area gaining particular traction in this field is embedded insurance. Made possible by technology and the increasing uptake of smart devices, such as smartphones, watches and vehicle telematics, this product harnesses the power of interconnection, real-time data, and the Internet of Things.

And this isn’t the only way that technology is helping the sector. The adoption of technologies such as automation, artificial intelligence and machine learning are streamlining operational processes, which is helping remove frictional costs. Considering the insurance market picked up a US$120 billion claims bill in 2022, such savings will surely be welcomed, and could eventually be iterated back as a better price for customers.

As the Head of UK Specialty Claims at Pro Global, I would like to shed some light on how local authorities and public sector bodies can save money for the public by simplifying their insurance claims processes.

Having appropriate insurance arrangements is crucial for the public sector to deliver services more effectively and to provide resilience to this critical sector of our economy. However, managing insurance claims in the public sector can be a complex and costly process. Unlike central government, local authorities cannot rely on the strength of the public sector balance sheet to finance insurance and insurance claims – instead, they must work independently to manage the risks they face, relying on the insurance industry for support.

Effective controls and streamlined processes are therefore essential for public sector bodies and local authorities to get the most out of their insurance arrangements and avoid financial losses or delays in claims.

The public sector faces ongoing financial pressures, which leads to a heightened need to focus on driving operational efficiencies and resilience. However, the fragmented nature of the market presents many challenges and can drain resources across various disciplines including risk management, the quality of data and management information, and duplication of effort and resources. To address these challenges and achieve effective claims management, an innovative approach is necessary to control costs and add tangible value. 

The rise of cyber and data security risks also presents a significant challenge for the public sector, and a lack of a robust digital strategy can hinder effective risk management. The solution lies in an integrated public sector claims management platform that presents a single version of the truth and offers reduced duplication, automation, and cyber security. 

This is where Pro Global can help as our claims management platform is backed by a team of insurance claims experts. Our platform is secure by default and reduces the need to share sensitive materials outside a secure domain, while providing automation and enhanced data insights to help users make informed decisions. The combination of our technology enabled capability and our experience team, which has a long history of transforming claims management processes in the insurance industry and can help simplify the complexities of public sector insurance claims, drive better outcomes and save money for the public purse.

Stability and growth 

To maintain stability and even achieve growth in this environment requires operational resilience – the ability to prevent, adapt and respond to, and recover and learn from operational incidents, including those relating to cyber and technology. 

The operational, reputational and financial risks of getting this wrong are serious for companies and for their customers. And regulators know this too and have placed a high priority on developing and embedding operational resilience in their supervisory approach in order to mitigate the risk of disruption to the provision of critical functions – including IT functions. 

At the end of 2022, for instance, the Financial Conduct Authority and the Prudential Regulation Authority fined TSB Bank a total of £48.65 million for operational risk management and governance failures, including management of outsourcing risks, relating to the bank’s IT upgrade programme. Technical failures in TSB’s IT system ultimately resulted in customers being unable to access banking services.

Digital operational resilience

And late last year, the European Council also formally adopted the Digital Operational Resilience Act (DORA), which aims to make sure the financial sector in Europe is able to stay resilient through a severe operational disruption.

DORA sets uniform requirements for the security of network and information systems of companies and organisations operating in the financial sector as well as critical third parties which provide IT-related services to them. Essentially this Act creates a regulatory framework on digital operational resilience whereby all firms operating in EU member states need to make sure they can withstand, respond to and recover from all types of ICT-related disruptions and threats. The core aim is to prevent and mitigate cyber threats.

What does this mean for the re/insurance sector? 

The intense and sustained scrutiny from central banks and regulators of re/insurers’ financial operational resilience and digital operational resilience is entirely appropriate given the volatility we have experienced in the last two years, and the short to medium-term economic outlook. 

Managing operational resilience adequately is a way firms can reduce their financial risk and the number and impact of IT or operational incidents. The way in which a firm manages operational resilience is an integral part of regulatory assessments of their safety and soundness. It is, therefore, essential that re/insurers know exactly what they need to do to meet operational resilience requirement supervision strategies, and the key drivers of harm for firms that they identify. 

This includes having a firm handle on data management and governance, and taking a top down view of operational resilience against the ambition of continuous improvement, before developing action plans to implement and embed changes that close the gap and exceed what is expected from regulatory requirements. 

Risk mitigation strategies

It is vital, therefore, that re/insurers can show that they have effective supervision models in place, can demonstrate an awareness of the drivers of harm and can clearly evidence how their firm has mitigated risk. 

Areas of focus should include conducting regular reviews for relevance and impact of any material market or economic developments; undertaking regular stress and tolerance testing; ensuring good governance by having clear structures for accountability and appropriate delegation and escalation routes; monitoring and mitigating key risks of harm; and allowing for strong and independent board oversight and challenge.

 The regulator has rightly focused on strong governance and operational resilience and, with moves towards tougher regulations in these areas, companies will need to ensure that they have robust processes in place or face possible investigations and enforcement. 

The benefits of working with a trusted outsource partner

The fact that operational resilience will play a significant part in boardroom discussions and media headlines in 2023 is ultimately a good thing – but the challenge is that re/insurers are also focused on running, growing and adapting their businesses and often struggle to find the necessary skilled resource to dedicate to eliminating processing errors, supporting their compliance journey and delivering sustainable scale as they grow. 

With the current macroeconomic environment likely to challenge most companies across the re/insurance sector for some considerable time to come, this highlights the opportunities for businesses to work with a trusted outsource partner such as Pro Global who can help with the heavy lifting in terms of dedicated resource and breadth of subject matter expertise – both of which are particularly important in some areas of the market at the current time with many organisations seeing staff turnover, recruitment challenges as well as a lack of relevant experience and expertise. 

Pro is a long-standing adviser and partner to the sector and we have the solutions to support companies with operational resilience, scalability and specialist people management. Working with true experts in the field, we are able to help leading re/insurers to protect their organisation, workforce and clients from adverse operational and financial events and improve their operational resilience strategies to exceed regulatory requirements. 

Contact us for more information.