The recent report from Oliver Wyman and the Chartered Insurance Institute (CII), "The Underwriter of the Future Six Years On," makes clear that in many areas of corporate and commercial insurance, much of the current "artisan" business model will get a "bionic upgrade" - not 100% machine, but an inseparable blend of digital technology and human capabilities. What are the technology implications of such a shift?
In SME, efficiency, automation and e-trading will be a pre-requisite. Fortunately, it will become much simpler to acquire these capabilities through microservice-enabled “software as a service” (SaaS) solutions and API-based services. These already exist today in banking – it is possible to build a fully functioning modular bank system completely from scratch in a matter of weeks – and are currently being introduced in retail insurance by players like IBA or Guidewire.
However, it is not enough to simply just acquire capabilities. Many insurers have so far taken an incremental approach to implementing digital via a series of point solutions. This raises the very real danger that they will end up with a “spaghetti architecture” that will be the next decade’s legacy IT problem. Firms need to design their new “bionic architecture” now.
The state of the art in SME will move to a number of areas such as:
- Zero data-entry underwriting: risk information collected manually today will become available online via public or private databases, and/or managed profiles,
- New tech-enabled risk factors: for example it will become possible to assess management quality from a business’s digital footprint on portals or its performance in supply markets,
- Risk tracking: quick discovery of changes to risk driven by more nimble trend assessment,
- Better assessment of exposures: for example understanding contingent and cyber risk by better assessing the interconnectedness of a business within its ecosystem,
- Earlier and better discovery of new fraud patterns.
All of the above requires agile experimentation, a very different capability from digitisation and automation. For technology, this will require much more in-house agile coding based on a microservice-enabled SaaS core alongside third-party APIs.
In the large corporate world, there will be some similar moves. Some changes will be required (though not necessarily easy), such as moving away from labour-intensive manual data collection, cleansing and analysis to “one click portfolio transparency.”
However the leading edge will be elsewhere. For example, we see advantages for insurers who:
- Can scale up their development efforts in multinational business across borders while still being able to interact with data/API providers in all local markets,
- Can participate actively in the formation of emerging risk trading markets and “digital cat” markets covering interconnected risks or concentrated risks from common technology components. This will require new technologies comparable to algo trading in investment banking today.
Excerpted from "The Underwriter of the Future Six Years On," from Oliver Wyman and the Chartered Insurance Institute (CII). Find out more on the changes coming to commercial insurance underwriting by reading the full report.