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The social responsibility of insurance: Insights from enriched data solutions

  • Publish Date: Posted 10 months ago
  • Author:by Paul Jardine

The world is becoming ever more complicated. Who would have anticipated devastating wildfires in Maui this year, or the sheer speed and devastation of Hurricane Idalia which, with an estimated insured loss of $3bn-$5bn, is far from the worst catastrophe event to hit Florida but could have been significantly more destructive had it reached Tampa.

For insurers, any solution that can provide them with greater insights into the changing risk landscape and help with understanding their global exposures is a topic of serious consideration.

Enriched data solutions for better decisions

Brokers and reinsurance carriers increasingly hold vast quantities of risk data which, like modeling agencies before them, they can use to provide a greater range of services to clients. With mega-brokers increasingly looking to advisory as a mainstay of their revenue, the global scope of these businesses gives them a broader view of the risk landscape that could provide extremely valuable insights to insurers.

Technology has significantly increased insurers’ ability to make better use of their risk data, but it is difficult for any one company to have all the answers when the risk landscape is so vast, complex, and rapidly changing.

However, we also live in an age where businesses can adopt enriched data solutions that will enable better decision-making and positively impact risk profiles, reducing the insurance gap for under-served or uninsured areas of risk.

Partnering with an intermediary or reinsurer who can offer enriched data solutions is not only beneficial for insurers, therefore, but also for their clients.

This access to enriched data is highlighted by Swiss Re Reinsurance Solutions, which provides risk data via API or as a platform. According to the firm's Sigma report, the impact of Hurricane Ian being one of the costliest events of 2022, resulted in insured losses estimated at USD 50-65 billion. The storm made landfall in an area of high economic value, urbanisation, and population growth. Rising losses from catastrophes point to the need for a complete understanding of all risk factors, with respect to secondary perils, which are not continuously monitored as closely as primary ones.

Growth through diversification

In my view, without access to enriched data solutions, insurers don’t stand a chance in trying to provide meaningful coverage for underinsured or uninsured risks.

The only way to address these risks is with data. But as with any process of transformation, the biggest challenge to overcome is insurance industry inertia. Carriers are understandably reluctant to try something new when they are already making good money doing what they've always done, the way they've always done it.

However, it’s my belief that businesses with greater insight will have the ability to grow rapidly because they understand where the real margins and the real risks are. And better insight into their client’s risks also leads to a greater appreciation by carriers of the diversification benefits they could derive from the client’s business.

A better regulatory experience

Insurers are facing growing regulatory pressure, particularly in relation to data protection laws and customer satisfaction. For UK-regulated carriers and intermediaries, the ability to leverage enriched data solutions goes straight to the heart of the FCA’s new Consumer Duty rules.

With an estimated 85% of UK businesses in the SME bracket, it has become mission-critical for insurers servicing that market to be able to both measure customer satisfaction and demonstrate to regulators that they are selling meaningful risk transfer products.

Does better data equal a better regulatory outcome? I think there's a journey between those two points, where better insights enable insurers to make better risk-based decisions. In turn, insurers are better able to prove to regulators that they are providing fair value to customers in terms of coverage, loss triggers, and claims response.

Leveling the playing field

Access to this type of enriched data should also level the playing field for smaller and mid-sized players, helping them to improve risk management and better deploy their risk capital to under-served markets.

But in truth, the entire insurance industry needs access to better data and tools, because demand is currently outstripping supply. If we want to get to a place where the industry can cover exposures that are currently largely uninsurable, then the participation of the whole industry is needed. 

There is also an incredible opportunity for reinsurers to access a distribution channel that has always been there but hasn’t been fully exploited, by white labeling some of their specialty products through their ceding companies.

Deeper pools of capital

When it comes to sharing data and insight, we've forgotten as an industry about the true social value of insurance and about our social responsibility to squeeze the insurance gap and bring stability and resilience to the communities we serve. 

The only way we can do this is, firstly, with data and insight and, secondly, through collective action.

This collective approach also enables insurers and reinsurers to access deeper pools of capital. By developing more parametric products, which can be transformed into capital markets instruments, the industry can access trillions of dollars of liquidity in the capital markets. 

Ultimately, this will see a return to the overriding principle that the losses of the few will be paid by the many.

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