AI is great; but collaboration and innovation still rule risk advice
Collaboration and innovation are key pillars of the non-life insurance industry, each enabling insurance brokers, risk managers and underwriters to mitigate the risks faced by their commercial and individual policyholders worldwide. This sentiment was expressed early during the first day of the African Insurance Exchange (AIE) conference held at Sun City recently. AIE 2024 was the 50th insurance gathering of its type, jointly hosted by the Insurance Institute of South Africa (IISA) and South African Insurance Association (SAIA).
CrowdStrike ‘slaps’ SA insurance event
Dawn Miller, Commercial Director at London insurance market, Lloyd’s, webcast into the event after struggling with connecting flights. She addressed the 1000-strong audience on the foundations of insurance, its evolution and the future of the sector. PS, the presenter was among thousands of global citizens to suffer travel disruptions following the well-publicised CrowdStrike glitch, which took down more than 8.5 million Windows devices globally. Your writer was not alone in seeing the irony in a risk-focused insurance gathering being negatively affected by a cyber-related risk event, despite the tech glitch having innocuous origins.
The presenter’s first objective was to remind the audience of the origins of insurance, which words your writer has modified ever so slightly. At the most basic level, insurance is a contract involving a fee or premium being paid by one party (the insured) to another (the insurer) in return for protection against a risk; the insurer promises to indemnify the insured against the loss should the risk occur, subject to certain conditions. “Decisions about taking on that risk, or to deploy one’s capital to become a carrier of that risk, are based on data and trust,” Miller explained, before abandoning the insurance fundamentals explainer to unpack the evolution of risk transfer.
Kudos to entrepreneurs and innovators
Miller credited entrepreneurs and innovators for bringing the insurance industry to life and fine-tuning its practice over the centuries. “As global trade diversified and economies developed, so did the value proposition of insurance, evolving to insure not only marine risks but property and life risks; today the global insurance industry totals nearly USD7 trillion in premiums across life, health and property and casualty each year,” she said. These premiums have become “the cornerstone of the financial services sector, supporting the global economic system by safeguarding businesses, communities and individuals against the uncertainties of the future”. Put another way, insurance enables economic and social resilience and sustainability.
It was interesting to slice and dice this USD7 trillion further. According to Miller, around USD1.3 trillion of the total premium flows into the non-life sector, and around USD160 billion of that filters into the London marketplace, which she described as “the home of especially complex risk”. Finally, around USD65 billion in premium reaches Lloyd’s thanks to its marketplace comprising around 50 insurers, 100 syndicates and 3 000 firms involved in the broking, engineering and risk management disciplines. This impressive premium flow gives the marketplace incredible influence in the ongoing evolution of insurance and risk transfer.
Today’s contract for insurance may be similar to that which informed the early maritime voyages that entrepreneurs sought to protect; but the range of risks considered is more diverse. Nowadays, insurers and their reinsurance partners are approached to protect businesses and individuals from cyberattack; emerging health concerns; geopolitical risks; and the rising frequency and severity of natural catastrophes, to name a few. “Collectively, there is always enough data available to decide on and / or underwrite a risk,” Miller said. This is just as well given we find ourselves in the age of autonomous vehicles; cloud storage; quantum computing and a range of other technology-backed innovations.
Complexity plus rising frequency and severity
The Lloyd’s director used the London marketplace to illustrate the collaboration and interconnectedness of stakeholders in 21st Century risk transfer. “We are a global insurance marketplace; a connected ecosystem of insurers, policymakers, and risk managers who are [indispensable] to global insurance stakeholders and the many nerve centres and areas of expertise around the world,” Miller said. She credited the complex, evolving global risk environment for the two-times-GDP growth of insurance premium written through the London marketplace, before singling out three factors that would bolster premium in coming years. First, risks are more complex than ever; second, risk events are growing in size; and third, risk events are becoming more frequent.
Africa lags the developed world in both life and non-life insurance penetration; but there are promising signs of improvement. “The African market is a vital part of the global insurance ecosystem, certainly from a perspective of distribution, and it is an ever-growing source of the business that we see in London,” Miller said. She estimated that the continent produced around USD20 billion in non-life premium per annum, of which around USD1 billion worked its way into the Lloyd’s marketplace. The conversation then segued to the all-important promise that insurers sell being indemnifying policyholders or paying claims.
The presenter sketched an alarming 25-year risk experience to begin this century, including a 2001 terror attack on US soil; the global COVID pandemic; and conflicts between Russia-Ukraine and in the Middle East. “Over the first quarter of this century we have seen incredible technological change [supporting the need for insurers to] collaborate and work together to share data and create a baseline [from which to] address the resulting challenges,” Miller said. If insurers do not work together, they will likely fail in developing risk transfer solutions to accommodate the risks arising from businesses’ fast-track adoption of artificial intelligence (AI).
AI straddling the risk and risk mitigation fence
Collaboration and innovation stood out as catalysts that would steer the insurance industry through the triple-challenges of complex risks; the rising frequency and severity of risks from natural catastrophe loss events; and new risks on the back of AI. It turns out AI sits on both sides of the fence, creating new risks and underpinning solutions to identify and mitigate the same. “AI presents us an incredible opportunity to change how we operate; how we make choices; how we underwrite; and what we underwrite,” Miller said. She mentioned that in the short space of two years, the number of companies applying to the Lloyd’s Lab with “true AI angles” had grown from around half to 100%.
The pace of AI adoption is daunting; but businesses and individuals have little choice but to adapt to the trend or risk being left behind. Lloyd’s responded through its Lloyd’s Lab initiative as a space where ideas, people, and mentors could come together to bring new ideas to the fore. The idea is to create an environment in which innovation is put to the test and where both failures and successes occur at breakneck speed. According to Miller, the latest cohort being considered for the lab is specifically focused on Africa, with 125 applications on different resilience topics, including climate change. Attendees at AIE2025 were promised exposure to innovative start-ups in areas like parametric triggers and AI-based underwriting changes.
Innovation should be cherished, not feared
Reflecting on that morning’s keynote address, the presenter opined that the transformational leaders of tomorrow would be those unafraid to collaborate, share and ultimately innovate on the journey ahead. To prosper, insurers and reinsurers will have to maintain discipline, and remain committed to resilience. “Collaboration is non-negotiable to ensure that innovation happens; this innovation is not something to be feared but rather something to be brave and courageous about,” Miller concluded, before congratulating the IISA and SAIA on the 50th anniversary of the AIE. FAnews adds our congrats too, we thoroughly enjoyed the two-day programme.
Writer’s thoughts:
The 2024 Africa Insurance Exchange shone the spotlight on collaboration and innovation as tools to help insurers and insurance brokers respond to evolving risks. Do you believe insurers are doing enough to protect your clients against cyber and other technology-related risks? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
