Insurance CEOs challenged to rethink their risk-opportunity mindsets

Insurers and insurance brokers who want to stand out from the crowd between now and 2030 will have to rethink their responses to the evolving threat landscape, leveraging emerging technologies to reinvent risk management and risk transfer rather than obsessing over making existing processes cheaper and more efficient. This was the tough ask of a group of insurance industry executives assembled in Johannesburg for the recent Insurance Institute of Gauteng (IIG) CEO Roundtable.

Henry Ford on customer-centric business

“There are many companies and industries in danger of focusing all of their activity on building faster horses, on improving what they have already got, in a world where that is probably the least important thing to do,” said ‘future of work’ author, speaker and thought leader, Graeme Codrington, who was on hand to guide the industry-focused think tank. He kicked off the session with some sentiment form Henry Ford, who once said: “If I would have asked people what they wanted, they would have said faster horses”. Ford built his company at a time when humankind was transitioning from horse and cart to the motor car. 

The futurist noted that the challenge to the gathered executives was to identify the disruptive forces likely to shape the insurance industry over the next few years and identify innovative responses to them. “Disruption is neither a positive nor a negative word; it is a neutral word which simply means deep structural change is taking place, and the rules of the game are changing,” Codrington said. He then trotted out a tried-and-tested list of nine overarching risks (or opportunities if you prefer) to inform the discussion. These were AI and data; cyber issues; Insurtech; climate change; plastics and pollutants; infrastructure failure; new generation talent; wellbeing economy; geopolitical upheaval. 

Over the following paragraphs this newsletter will rehash some of the introductory remarks made by the facilitator with the instruction that you read and assess these threats with an open, opportunity-inclined mindset. Data and artificial intelligence (AI) were first up “Most clients in most industries have not even begun to dig into what they can do with their data,” Codrington opined. He said the Holy Grail of the data paradigm was in shifting from building around your existing data, to thinking about what you might do if you had access to all available data. The exact turn of phrase was: If we had all the data possible, what would be possible to do with that data? 

Why does my insurer not know me?

One of this writer’s favourite examples of poor data usage was shared early on, namely the apparent inability of silos within leading financial services brands to share customer data. “The banks have become so siloed that the guys who have access to see what is going on in my transactional account have no idea what is going on in my loan accounts [let alone] engaging with the guys on the investment side,” the facilitator said. Imagine, for example, if your bank was more interactive at key points in your life, such as when you children reach the milestone of receiving their driver’s license or heading off to university. He had strong words for those using data protection legislation to throttle innovation. 

According to Codrington, compliance with European General Data Protection Regulations (GDPR) and South Africa’s Protection of Personal Information Act (POPIA) do not restrict banks, insurers or insurance brokers from leveraging client data across their businesses. The rules are fairly clear and consistent: You need your customers’ permission to use their data; you have to tell your customers how you are using their data; and you have to respect a customer’s request to stop using his or her data. If you want to go next level on customer data beneficiation (apologies for the mining terminology) then you need data detectives rather than data analysts in your firm. 

AI came in for a proper bashing as Codrington warned against thinking of generative AI as a means of simply boosting productivity and reducing headcounts. His position is that the world is still years away from true AI and that the large language models (LLMs) being ‘sold’ today are little more than a blunt instrument. “What an LLM does is take the last 18 words you have said and tries to guess the next one,” he explained. The key differentiator is that LLMs can (potentially) be trained on every data object ever archived on the Internet. For example, Chat GPT takes the vast expanse of human wordage to give you the very average of that data when prompted. 

Knowing when to use an LLM, and when not to

The facilitator explained the trick in using LLMs was in contemplating what the LLM might be good at. For example, Chat GPT would be pretty good at reproducing factual results from the history of the Olympics. However, if you asked it for an awesome beef stew, Chat GPT would do little better than return an average of the millions of recipes it has knowledge of. “It will produce a passible beef stew that everybody can eat, but few will like,” Codrington said. He warned that by relying on Chat GPT for data analysis or customer service improvements, businesses risked doing what everyone else was doing: “We need data detectives in our businesses, not data analysts”. 

It did not take long for the cyber security topic to be turned on its head too. “The biggest risk we are facing in the next few years is cyber identity and our ability to prove that somebody is who they say they are,” Codrington said, before positioning ‘insuring identity’ as a potential opportunity for the broader insurance and reinsurance sectors. And a similar approach was advocated under Insurtech. The executives in attendance were asked to shift gears from building or leveraging technologies “to do what we already know how to do better” towards using tech to “open up opportunities we have not experienced or imagined before”. 

As the discussion moved through the various risks, your writer realised that insurers and insurance brokers are risk focused ‘beasts’. You are hard wired to think about the likelihood of a risk event occurring, and if that event occurs, the extent of damage or loss it potentially causes. And it is incredibly difficult for a room full of executive level insurance or insurance broking personnel to think in terms of ‘opportunity’ when presented with phrases like ‘climate change’ or ‘infrastructure failure’. The risk-aware minds gathered in the room immediately see the billion-dollar claims emanating from the rising frequency and severity of extreme weather events compounded by poorly maintained infrastructure. 

18-days per billion-dollar loss event

Codrington sketched the impact of extreme weather using insurance statistics from the United States (US). In that market, insurers and reinsurers have seen billion-dollar loss events due to natural catastrophe surge from two-per-year in the 1990s to one every 18-days over the past four or five years. Unfortunately, if you remain stuck in a risk-focused mindset you soon become entangled in ‘what if’ type debates. For example, what if South African insurers and reinsurers respond to flood risk in the same way as insurers in Florida, or to fire risk in the same way as the industry has in California? 

The conversation turned to a major theme in the South African insurance sector, namely skills and talent development. “I am advocating on behalf of today’s young talent,” Codrington said. He added that he was tired of listening to business executives complaining about members of the entitled, lazy younger generations … and that such complaints were as old as time itself, repeating generation after generation. Attendees were challenged to “look at the game through the eyes of a young graduate” and reflect on old world obsessions about being in the office every day, or the more recent requirement of staff being available and ‘on call’ 24-7, 365. 

“Maybe we should listen to our young hires a bit more; they bring a fantastic new set of skills that we are not used to, including the ability to work virtually; to be more flexible; and soft skills in areas like creativity, insight and being data detectives,” Codrington concluded. There is, after all, nothing wrong with expanding an old-world job description to include ‘making a difference’ in the community and society you work in. 

Writer’s thoughts:

Today’s challenge to insurance industry CEOs to rethink their application of technology in business is refreshing. Do you agree that our obsession over risk mitigation and transfer blinds us to the opportunities that exist in tech-backed innovation? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.