Disruption is the bread and butter of any risk management professional. As risks evolve and new challenges emerge, they must be ready and willing to adapt, lest they want to be left behind, heard attendees of RiskMinds 2016 in Amsterdam.
Disruption is the bread and butter of any risk management professional. As risks evolve and new challenges emerge, they must be ready and willing to adapt, lest they want to be left behind, heard attendees of RiskMinds 2016 in Amsterdam.
A survey by McKinsey & Company, the results of which were revealed at RiskMinds, suggested that both external and internal pressures are accelerating the development of risk management capabilities across the global insurance sector.
The survey results addressed the driving forces behind an increasingly complex environment, evolution of risk management tools and practices, and increasing debate around systemic risk.
The survey, which ran between July and October 2015, showed that interest rates and market volatility are considered the most impactful factors and that the industry has increasing concerns over biometric risk and changes in customer preferences.
Participants also noted that the insurance industry is less “systematic” than banking, with national catastrophic risk and a potential loss of confidence in the industry emerging as the main sources of concern. Regulatory frameworks are also considered to be effective in preserving financial stability, according to the survey, while there is question over whether there is need for additional regulation.
Nine out of 10 participants felt there is a need for improvement in their risk capabilities and a need for more improvements by smaller players.
Risk transparency and insights were key improvement areas for all participants, while risk culture was found to be particularly crucial for smaller players. Participants also said there is still room for improvement when it comes to risk appetite, organisation and governance.
Luca Pancaldi, partner at McKinsey & Company, suggested that the company’s experience with successful enterprise risk management transformations share common traits.
He said that the chief risk officer needs to take the driver’s seat and step up to a true leadership role. He also suggested that the board and top management need to commit to steering the programme in the right direction.
An integrated perspective, with consistency across core enterprise risk management elements, is even more important than achieving excellence in a specific area, Pancaldi said. There also needs to be an emphasis on communication and a good connection between the boardroom and the “machine room”.
In another session at RiskMinds, Eva Dewor, managing director of Europe, America and Latin America for Accenture Finance and Risk Services, highlighted the new trends hitting the insurance market. Dewor revealed that trends included an extended ecosystem, a culture of sharing, more mobility, new market opportunities and customer experience.
She explained that while most insurers focus their efforts on differentiation and customer experiences, new players, including the likes of IKEA, Apple, Uber and Metromile, are changing the game.
She revealed that 76 percent of insurers believe a more fluid workforce will improve innovation. Another statistic showed that 75 percent of insurers expect a major transformation of the insurance value chain in the next five years.
In addition, Dower noted that 72 percent of insurers are planning to form new distribution partnerships in the near future, or have already done so, while 44 percent of insurers consider connected devices to be a driver of revenue growth.
It was also revealed that 63 percent of insurers are prioritising the use of data for needs-based selling. Dower suggested that by 2020, over 50 million US drivers will have tried usage-based insurance.
Dower went on to explain that cyber crime is a big business, and that technology companies are targeted for their data while financial companies are targeted for their monetary benefits.
She said: “Cyber risk can manifest itself across several dimensions, making it difficult to detect, measure and control.”
Dower concluded by suggesting five key priorities to help manage cyber risks effectively: training and risk culture; more controls; management with a purpose; an operating model; and resilience.
With the insurance market ever-changing and companies expecting digital technology to significantly transform their businesses within the next few years, Martin Pluschke suggested that the insurance industry buzzword for 2016 and beyond will be ‘insurtech’.
Pluschke, executive in residence for ERGO at Startupbootcamp InsurTech, described digitalisation as only the tip of the iceberg. He noted that insurance industry conditions have changed and that more change is happening right now.
The growth potential of the future is based on digital business models. He suggested that when companies are producing a digital product, they have to ensure they are doing the right thing, the right way.
He added that the old way of thinking is of little use when it comes to digitalisation, arguing that the industry will have to think differently and be creative, which will give participants the mindset and attitude needed to produce a digital product.
Pluschke explained that if the industry ignores new companies and start-ups, then it is ignoring the big potential they offer. He noted that the permanent search for the next big thing is what makes these start-ups interesting.
According to Pluschke, two words that are killing innovation are ‘prove it’. He suggested that the insurance industry has a lot to learn. He explained: “We need to make decisions carefully. The biggest risk at the moment is taking no risk because it is the core ability of the business insurance company.”
He added: “The best advice I can give is, when you find a start-up, and you’re really convinced about it, place it in strategic share.”
“You are allowed to look in their books to help make a decision. Do not integrate the start-up with your company business admin. It will ruin it. Let the start up have control.”
Pluschke went on to say that it’s not all about the technology. People, he said, are important, too. “We need people who are not limited in their thinking,” he said. However, he added: “On the other side, the company has to ask themselves how they can handle trouble makers and how much they can endure. It’s not about technique and processes, it’s about making the company attractive to these people.”
The industry is still in the learning stage of the technology curve, Pluschke concluded. He suggested that the first step to digitalisation is change, but that this will be a long process that could take five to seven years.
Another panel suggested that as an industry, insurance has too much data. Panellists Fabrice Brossart, chief risk officer for AIG EMEA, Jason Brown, group chief risk officer for QBE Insurance Group and Andrew Pryde, chief risk officer at Beazley, discussed whether too much data could be affecting the idea of risk pooling.
One panellist said the industry needs to consolidate and bring data together for the industry to be able to gain a better understanding.
The speakers also suggested that a company should know its terrain, look at its risks and analyse its data.
When asked about the most dangerous risk to a business, the panellists agreed that business disruption was top. One added that the industry needs to be more innovative and interact with its customers more.
The panel participants explained that disruptors could be the thing that changes risk and the nature of the risk, using the example of Google driverless cars.
Companies look externally for the disruptors, according to the speakers, however, they noted that these disruptors could come from within the business, and that internal disruptors could include a change in the organisation.
Technology and cyber, current hot topics in the industry, were also mentioned during the session.
Panellists suggested that a cyber breach is going to disrupt every company at some point—it is just a case of when.
