We have seen hurricanes Harvey, Irma, Jose and Maria destroy lives and property. One estimate of the total economic losses for Irma alone stands at $300bn. Now that the clear-up is underway, we hope that those affected will be able to rebuild and recover.
We are starting to see the impact on the insurance industry, but I believe there are yet bigger storms and disruptions brewing. The way the insurance market works has not changed in decades, if not centuries. Yet we can see seismic changes in how our industry is structured, capitalised and delivered.
Fantasy Football and Insurance?
I’m a huge football fan, I prefer the real thing over the popular fantasy version played out by the team at Shepherd Compello. However, while fantasy football is just a fun reflection of the vast wealth available in football, it concerns me that I see parallels in the game I love and the industry that has been my career.
Both are inflated by outside capital, money that is not necessarily interested in the good of either industry. In the case of football, the funding is from the super-rich and firms looking for a ROI or a portfolio of sports franchises. For insurance, the capital is often also of the venture type, looking for a return and then moving on to the next deal. This is especially true for insurtech, with one report estimating the investment last year alone at $1.69 billion. Like fantasy football, or the real game, this type of remote investment pays little interest to the underlying business.
Storm clouds in the East
Hurricane Disruption is swirling in every industry and sector. The taxi business has been challenged by Uber, hotels by Airbnb and high-street retailers from online traders like Amazon – so they weren’t just a bookseller after all. Why should insurance be different?
Insurance is of course not immune to disruption. In this respect, we had a huge wakeup call with the recent initial public offering of ZhongAn in China. Not heard of them? They have just raised $1.5bn and have underwritten 630m policies in the last year alone, with a purely online proposition. Before they floated they were backed by venture capital, one of those backers was Ping An, who owns the Lloyd’s building.
There is much speculation about how successful ZhongAn will be, not least as they are expected to make a loss this year. However, rather like forecasting the size of those hurricane losses, what can be predicted is that the impact will be massive. Capital is available, insurtech firms are lining up and artificial intelligence (AI) is standing ready to replace a human underwriter.
What does the future hold?
I like to drink from the glass marked half-full, so while I am realistic about the challenges, I believe we should embrace them. There is no doubt that we must employ technology, but we must also employ people. Smart people with experience and enthusiasm for insurance – the kind of people I am proud to work with at Shepherd Compello.
When I look at the insurance market, I see a reduction in the number of firms and a contraction but not a hardening, there is vibrancy and an appetite for the right risk. There is no place for complacency, but there is a place for our own form of disruption using the skills we possess. This has been seen in the rise in the number of coverholder and MGA start-ups.
A good example of this is my good friend Duncan McClure Fisher’s recent start-up, MotorEasy. An online business which will handle pretty much everything I need in order to to keep my car on the road: GAP, warranty, MOT, servicing and repairs. Crucially, you can still talk to a person if you need to.
I believe the key to the success in the future will rest in three areas:
- Differentiation – adding true value. The challengers have capital and technology – we must be clear about what we offer and how it benefits clients.
- Flexibility – develop products and services quickly and efficiently, and deliver them to customers in a manner that suits them, not us.
- Being nimble – in a rapidly-changing business world, the ability for an MGA to act quickly and seize opportunities can make them the new disrupters.
Ignoring the storms swirling around us is not an option, but riding them out with resilience, skill and experience most certainly is.
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