Change or transform: How brokers respond to poly-crisis disruption
How 21st-century insurers and insurance brokers respond to global change and technology-related disruption remains poorly understood. The primary reason for this confusion lies in how these terms are interpreted in the corporate risk management context. “We do not understand what disruption is or how it impacts our lives [with the result] we are slow to change or transform our businesses,” said JP Holmes, Head of Specialist Property Business at Bryte Insurance.
VUCA plus poly-crisis
Holmes used his platform at the recent Insure Talk Live event to explore the question: can insurers and insurance brokers truly differentiate in an era of rapid technological advancements? To begin, the presenter described the prevailing global macroeconomic environment using an acronym, VUCA, and the term poly-crisis. Most FAnews readers will be familiar with VUCA as a complex mix volatility, uncertainty, complexity and ambiguity, though the presenter offered a slightly different mix.
“The term poly-crisis is used to describe a number of cataclysmic events affecting the globe at the same time, such as outbreaks of communal diseases on a global or regional scale; climate change driving more natural disasters and affecting large communities; economic uncertainty; systemic collapses; and war,” Holmes said. In addition to the poly-crisis backdrop, there are a number of mega trends reshaping the competitive environment for insurers and reinsurers, not least climate change, sustainability and technological advancements.
According to Holmes, these poly-crisis events are causing uncertainty across the risk management discipline in terms of its response. Insurers and reinsurers can potentially respond to a poly-crisis landscape by changing their product or service offerings, making tougher demands on insureds to implement risk mitigation strategies, or limiting or reducing their loss exposures; all steps that cause changes in the customer experience. “When we fail to interpret what real disruption means to our business, the customer experience ends up being poor,” he warned.
Taking your insurance business elsewhere
As any broker will tell you, a poor experience with an insurer leads to the insured seeking alternatives in the market, even going beyond traditional insurance to consider alternative risk transfer (ART) solutions. Those in the broker fraternity are also well aware of the negative impact of recent catastrophe-loss-related interventions by reinsurers in the domestic market. Flood disasters in KwaZulu-Natal and elsewhere; mega fire losses; pandemics; political instability; and potential grid failure have all brought about significant coverage changes.
“We have seen reinsurers withdraw capacity from certain segments [and/or] increase their pricing and net retention to insurers, upping insurers’ cost of capital; these are costs that need to be transferred to the client, meaning they receive less cover for more money,” Holmes said. The pressure to maintain exemplary levels of customer experience does not end there, as insurers and insurance brokers face stricter regulatory frameworks, both locally and offshore. There is a strong focus on environmental, social and governance (ESG) factors, with the Green Finance Taxonomy (in SA) and looming Climate Change Risk Management frameworks as some examples.
According to Holmes, the insurance sector may respond by incentivising clients who deliver or use green solutions on the one hand, and possibly avoiding those who fail to do so. “This will impact our risk appetite, the industries we focus on and the type of products we provide going forward,” he said. The presentation quickly shifted gears to consider the subtle differences between change and transformation under disruptive pressure. As is often the case, the presenter deferred to an expert on the construct for greater impact.
He quoted Daniel Burrus, a renowned futurist and author, wrote: “Change comes from the outside in, forcing us to react and respond with agility in a defensive manner, whereas transformation is an offensive and anticipatory competency quite different from change.”
Change versus transformation
Burrus also observed that, “A competitive advantage depends on how you define the terms change and transformation, as the vast majority of leaders believe they are transforming a process, a product, or a service when they are really just changing it.”
In simple language, change tends to be reactive, whereas transformation is proactive and strategic. And to truly differentiate your business, you need to make the critical distinction between change and true transformation. If one accepts the rapid adoption of generative artificial intelligence (AI) as one of the future disruptors of the insurance sector, the question becomes whether you change your business or transform it in response. Holmes did not delve into the specifics here; but allow your writer some licence to offer an example of his own.
A traditional insurer might adopt AI-driven chatbots to handle basic customer queries, a change that improves efficiency but largely maintains the existing service structure. Alternatively, they could transform their approach entirely by using generative AI to redesign their underwriting processes, perhaps introducing predictive models to assess risk dynamically and create hyper-personalised covers. This approach would not just enhance existing processes, but redefine how insurance products are developed, priced and delivered; turning the disruption brought about by AI into a strategic opportunity.
On electric vehicles (EVs) and self-driving cars
The presenter singled out the advent of self-driving cars and the greater uptake of electric vehicles (EVs) as disruptors of the short-term motor insurance class. “Insurers and reinsurers will have to reinvent their pricing due to shifts in the risk landscape; we are either going to have fewer accidents as the take-up of public transport rises, or we are going to face more EV fires,” Holmes said. Identifying the disruptor is far easier than determining and deploying a change or transform response. One thing is clear: The motor insurance business model that exists today will disappear over time.
Governments and regulators will play an important role in allowing change and transformation to occur. Case in point, the South African insurance sector is still locked in discussion with the Financial Sector Conduct Authority (FSCA) and Prudential Authority (PA) on whether or not parametric-type insurance solutions may be offered domestically. Parametric insurance can be thought of as transformative because it fundamentally alters the traditional insurance model by replacing the conventional indemnity-based approach with a predefined payout system triggered by measurable events.
Unlike traditional insurance, which compensates for actual losses and requires detailed claims assessments, parametric solutions provide immediate pay-outs to all insureds once specific triggers are met. These triggers could be rainfall levels, seismic activity, temperatures or just about any sensible, measurable metric the insured and insurer agree on. The speed and simplicity of parametric solutions reduce administrative overheads in addition to addressing gaps in coverage. Its widespread adoption could mark a pivotal shift in how insurers approach risk and go some way to building resilience in the face of climate change.
Navigating the poly-crisis
Holmes concluded by saying that insurers would have to navigate the human element in addition to responding to poly-crisis disruptors. His challenge to the insurance stakeholders in the audience, in line with Burrus’ advice, was to leverage change and turn it into transformation. “You should consider the degree to which you have been able to change or transform [in response to disruption],” he said, and then ask: “Have you made slight adaptations to something that already exists, or have you done something that will truly turn the industry on its head?”
Writer’s Thoughts:
There are two ways to respond to disruption. You can make small, sensible changes to your products and services, or you can completely transform your business. Which of these approaches makes the most sense in the intermediary market? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
