Yellow brick road for the commercial insurance industry
Why has digitalisation become the industry’s greatest boon?
The commercial insurance industry has been operating at 20% to 30% loss for some time—and this is becoming the norm, especially in Asia, one of the fastest-growing regions in the world.
These losses are brought about by how the global macro environment has become increasingly interconnected, volatile, and uncertain.
With how the world is now, it is not surprising that there has been an intense focus on environmental, social, and governance (ESG) factors in the insurance industry,
According to Oliver Miloschewsky, Client Development Director of Concirrus Asia Pacific, the combination of these factors means that backwards-looking risk models become more and more ineffective as risks and client needs evolve and the rate of change accelerates.
He emphasized that the industry needs to adopt a much more forward-looking view that adds value to their customers over and above financial risk transfer, particularly in Asia.
Talking with Insurance Asia, Miloschewsky spoke about the importance of digitalisation in Asia’s commercial insurance industry and the strategic advantages of a data-driven model as opposed to traditional methods.
How will digitalisation solve the problems the commercial insurance industry is facing right now?
Digitalisation directly addresses a number of key challenges in commercial insurance, namely operational efficiency and sustainable profitability.
In order to derive real value out of data, organisations need a digital environment that deploys all the data and analytics in a consumable and user-friendly way. Technology to digitally transact and automatically ingest data is readily available. This significantly reduces operational costs and, at the same time, lays the foundation to enable powerful analytics to unlock meaningful insights to drive faster decision making with more accuracy.
Predictive analytics is the most exciting and arguably the most significant step. Underwriting teams can then develop new coverage types, price them using the latest available data, and rate them in a digital system that delivers real-time visibility of changes associated with the risks. Once bound, individual risks and indeed the entire portfolios can be actively monitored by intelligent systems that alert underwriters or risk managers to changes in peak exposure, compliance, and even pre-claim detection.
Predictive analytics also delivers real value to customers by providing tangible insights into risk which can be proactively managed. This is a win-win situation for commercial insurers and their customers.
What digitalisation trends do you see affecting Asia's commercial industry?
Digitalisation is a global trend and the drivers of successfully harnessing its power are quite universal. What is different in some Asian countries is the strategic mindset and support. Singapore for example continues to actively encourage and strategically support insurtech, enabling ecosystems to flourish.
The combination with strategic support for specific industry segments, for example maritime technology, makes this even more powerful as customers and commercial insurers are getting ever closer.
What are the strategic advantages of having a data-driven model in the commercial insurance industry?
Put simply, adopting a data-driven approach is critical to ensuring profitability, operational efficiency, and portfolio growth.
All insurers have historical data within their existing portfolio; however, they are not necessarily resourced to take full advantage of this data, which can be limiting when looking to grow or expand into new areas of risk. Historical data of individual companies will also have an inevitable bias to risks written in the past and often significant blind spots regarding segments or geographies not previously serviced. This is where the third-party data and analytics providers can play a crucial role, not only in making a company’s own data accessible in a cleansed and meaningful format but also to provide access to broader market models that provide a much more accurate and holistic view of risks. This directly informs underwriting strategy and risk appetite which can be adjusted almost in real-time.
For the underwriter, it is important to receive submissions that are prioritised based on their appetite and targeted market segment. The immediate and long-term benefit is a much more productive use of time, as insurers are able to focus on the most relevant risks and make much better-informed underwriting decisions, resulting in a more balanced and profitable portfolio.
What countries in Asia do you think are on the right track in adopting digitalisation in their commercial industry?
Asia is the most exciting, but also the most diverse market, with significant differences in size and maturity of commercial insurance industries. Two of the most advanced countries would have to be Singapore and China, actively driving digitalisation. Singapore is well-established as a major regional hub for commercial insurance. China has the advantage of a huge domestic market and companies like Ping An are at the forefront of digitalisation.
Some commercial insurance classes like marine have historically struggled to generate consistent positive returns. Do you think digitalisation would cut down on these losses? If yes, how much can be saved by dumping traditional methods?
Profitability varies among commercial insurance products, but marine has certainly been one with a very poor track record globally. We have backtested our risk selection and pricing models with customers and the results have clearly shown that a data-driven underwriting approach and portfolio management has the potential for a huge improvement in loss ratios of as much as 20%.
Of course, insurance companies have to manage their commercial relationships and will not always be able to execute 100% on technically correct underwriting decisions but the potential improvement clearly shows just how powerful digitalisation can be.
The combination of loss ratio improvements, better accumulation control with resulting reinsurance optimisation and gains in operational efficiency will dramatically improve the profitability of commercial insurers.
In your perspective how is Asia faring compared to the rest of the world in terms of a digitalised commercial insurance industry?
What makes Asia very exciting is the combination of leading insurance places like Singapore combined with amazing growth potential in countries like India and Indonesia with a population of 1.366 billion and 270 million, respectively.
Less mature commercial insurance markets can have quite a significant advantage in terms of digitalisation. They don’t have to deal with the complexity of interconnected legacy systems. Asia will therefore continue to be at the forefront of digitalisation.
We are certainly passionate about Asia, its growth, and the opportunities it presents. Over the next five years, we envision Concirrus becoming the trusted partner of insurers throughout the region, managing third-party data that will fuel the transformation of the commercial insurance industry.
How has Concirrus contributed to the push towards digitalisation of the commercial insurance industry in Asia?
After launching commercial operations in Asia, our goal has been to partner with local and regional insurers and brokers to help them solve their three most pressing challenges – improving profitability, reducing operational expenses, and ensuring portfolio growth.
By giving Asia’s insurers and brokers access to previously unavailable data and analytics, they now have the ability to underwrite their existing portfolios more successfully, and confidently expand into new risk areas knowing that their decisions are based upon true behavioural data.
Concirrus offers a broad range of solutions for commercial insurers, ranging from high-quality industry-specific datasets, advanced AI and analytics, process automation, risk modelling, and a cutting edge technology stack. Our technology and insurance expertise help commercial insurers unlock efficiencies across the organisation and drive a more sustainable future for our industry.