New technologies together with better data and analytics are changing the insurance industry, bringing efficiencies and savings for companies and consumers.
But there are potential downsides and “unknowns” ahead, and the industry must also adjust its attitude to recruit and retain millennials.
Those were points discussed by industry veteran Michael Butt when he spoke at the PwC Insurance Summit in Hamilton.
The Axis Capital chairman, who has more than 50 years experience in the sector, was a speaker at the event. He was asked what excited him about the future.
“The industry is improved by getting better people, to apply better intellectual discipline to better data,” he said.
He explained that, historically, the insurance industry has been a large, mutual pool where “big lumps of risk” have been put together and shared.
Mr Butt said: “What is happening now, as a result of data, analytics, and technology, is that we are getting better and better information so that we can break those pools down. So we are demutualising the industry. We are making smaller and smaller pools of the same risk and pricing them differently because we have got better information.”
As an example, he said data could now differentiate more accurately been good and bad drivers, and the better ones would pay less for their insurance.
He said that as a result: “We will probably end up, for the same pool of risk, with less premium overall.”
Mr Butt was in conversation with Robert Armstrong, US finance editor of the Financial Times. Mr Armstrong noted potential downsides that could arise in areas such as health insurance, where more granular data on individuals might result in some being “shut out” from obtaining insurance because they are deemed a bad risk.
“Is that tough?” he asked.
Mr Butt said: “The answer could be ‘tough’. If I’m paid to take risk, and there is risk that I don’t wish to take, ‘tough’ — there will be another solution.
“We get into governmental pools for uninsured risks, which is what happens. So, there are solutions.”
He also reflected on an illustration given by a previous speaker, where technology can make it possible for a retail consumer to buy car insurance that covers only one day of the week, because they only use their vehicle one day a week.
Mr Butt said: “Why not.” He also agreed with Mr Armstrong’s suggestion that advances in technology would mean smaller premiums for consumers and a more efficient and cost-effective industry
On the question of how to entice a new generation to pursue careers in the industry, Mr Butt said: “We have to adjust our attitude to employing people, and how we employ them, so we can recruit millennials and keep them.
“We have to use the excitement of the impact of technology, artificial intelligence, data and the need to price risk and sell it to excite people to come and join the industry.”
Mr Armstrong asked the Axis chairman how he foresees technology changing the industry in the next five years,
Mr Butt said: “We will have a much better understanding of existing risks, and probably a marginally better understanding of specific risks or new risks.”
He pointed out that one challenge is the difficulty of pricing “the totally unknown”.
He said: “If there is a puzzle, it is how we are going to deal with totally new types of risk. We have cyber at the moment, but as a result of technology, as we move from a tangible to an intangible economy, we are going to throw up challenges for which there are not obvious solutions at the moment That’s what worries me.”
Mr Butt acknowledged that change and adjustments are already happening at the retail end of the insurance market, and this will drive changes at insurance and reinsurance companies.
“At the pure consumer end, there is going to be a more immediate impact from the technological change, AI, etc,” he said.
“And going back to another point, we are going to be disrupted from inside the industry rather than outside. It is going to be driven from retail back into wholesale [insurance] and into reinsurance, which is what is happening now.”
The one-day summit was presented by PwC and the Financial Times. It was held at the Hamilton Princess and Beach Club.