Time to wake the sleeping giant
initiatives, it is clear to see that we are undergoing a seismic transformation.
We are seeing clusters of low orbital satellites being launched and technologies such as Satellite Aperture Radar making it viable to track all vessels globally, regardless of cloud cover or AIS signal. Data is becoming more widely available and machine learning technologies are enabling shipping companies to leverage this data to implement significant operational efficiency. As a result, insureds are becoming incredibly sophisticated in their approach to their underlying risk and are starting to demand more than cover from their insurers.
As of December 2019, TradeLens, a blockchain-enabled digital shipping platform jointly developed by Maersk and IBM, has managed to onboard over 50% of global containerised trade. Imagine where it will be in a few years and compare that to the limited historical claims data sets that insurers use today.
The result is a change in risk transfer behaviour, leading companies to retain more risk on their balance sheets, while seeking only specialist cover and services from specialist providers. There have been several high-profile examples of large accounts leaving the Lloyds market in favour of P&I. This has less to do with price and more to do with the core competencies of loss prevention and member services For the last 200 years, the insurance market has existed to provide solutions to the world’s most complex risk challenges and the most remarkable risk innovations in history. The risk transfer mechanisms it has created have rebuilt disaster zones and made the world a more resilient place, facilitating global trade, commerce and innovation.
As we progress into 2020, the same value chain that has served the market so well for centuries is fragmenting with two distinct approaches coming to the fore. One that exists to serve traditional products to traditional risk categories and the other, centred around a new operating model and approach to underwriting and broking, driven by technology, and underpinned by the democratisation of data. Those embracing the new model have recognised that the world has changed and, with it, the risk that they serve. RISK HAS CHANGED The world has become increasingly dynamic and connected, with a myriad of threats that no longer fall within the traditional lines of business categories and cannot be quantified based on experience or historical approaches. Super vessels such as the Pioneering Spirit are completely unique, cyber attacks on vessel systems are becoming more frequent, climate change is opening new trade routes and having a dramatic impact on the seas and US foreign policy is increasingly protectionist. Add to this connected ports, increased automation, the New Silk Road Initiative and the various global blockchain Last year was a one of real change for the marine insurance industry in which the adoption of digital technologies picked up pace. These technologies are being implemented to solve problems and drive efficiencies, but, Mark Phillips of Concirrus, the insurance focused software firm, believes the industry has failed to realise the sleeping giant that exists. Drawing on real-life cases and insights nurtured through collaboration with the industry and other insurtechs, he believes that the industry is on the precipice of an opportunity to do things differently.
more resilient. For those that do not, there will always be business to be done, but this business will become increasingly commoditised and transactional.
On the reinsurance side, Willis Re is working with its global clients and an identified consortium of reinsurers to identify the benefit in reinsurance terms of insurers adopting the Quest platform. The outcome of this work will be the digital transfer of risk data; new predictive measures of exposure for specialty lines as well as brand new reinsurance structures that are elastic in nature. As with the above, this is likely to lead to new rate differentials between those who display an ability to prove performance against these new measures of exposure and those who cannot. SLEEPING GIANT We have seen that companies throughout the value chain are investing in technology and data solutions to drive efficiencies, gain competitive advantage, develop their product offering and navigate through the complexity of a changing world. To date, most of this technology investment has been localised to specific use cases or industry challenges. But, in some areas we are seeing the market begin to collaborate around the use of data to do what it does best, provide solutions to complex risks. In 2020 and beyond, we expect the sleeping giant; that is, the new digital market, to awaken. The various siloed technological initiatives from that P&I Clubs have always provided. The Clubs have identified this trend and many of them are in the middle of significant digital transformation strategies, centred around the use of data to increase their products and services. OPPORTUNITY 2019 was the year that maritime insurance technology finally achieved product market fit and adoption became widespread.
Price Forbes announced the first successful end-to-end marine hull risk placement through the Whitespace digital platform with AXA XL, MS Amlin, Talbot Underwriting and Neon Underwriting all writing the risk electronically. The DNK has launched a purely digital war product and we have seen Munich Re and others launch condition monitoring, based on the use of sensor technology for wine shipments and pharmaceuticals.
For our part, we have seen a 400% increase in our client base over the last 12 months with market leaders such as Marsh, Willis Re, Skuld, Hiscox, North P&I implementing the Quest Marine digital platform at the core of their workflows to enable dynamic, data-driven decision making and pricing. We are seeing brokers digitise global data sets to develop predictive pricing models, companies leveraging data to enter new lines of business, and the launch of new digital products and services.
As of the second quarter of this year, Marsh brokers will be entering Lloyds with behavioural analytics at the core of their submissions. Existing Concirrus clients will be able to easily ingest this data and run against their own view of behavioural risk, generating a predictive price and full behavioural history in under five seconds. At this moment, the conversation will be transformed into a data-driven one facilitated by a digital platform.
Those capable of having this conversation through the embedded use of technology and data will have a significant advantage over others. The best risks will gravitate towards this distribution and capacity as the digital market is able to value, as part of an insurance submission, the use of technology in making their operations THE WORLD HAS BECOME INCREASINGLY DYNAMIC AND CONNECTED, WITH A MYRIAD OF THREATS THAT NO LONGER FALL WITHIN THE TRADITIONAL LINE OF BUSINESS CATEGORIES AND CAN’T BE QUANTIFIED BASED ON EXPERIENCE OR HISTORICAL APPROACHES. Mark Phillips, Concirrus
supply chain blockchains, digital placement, smart contracts and the use of data-driven insights will become connected to create a new data democracy. Companies will realise that there is so much data available, that their own data sets in raw form are limited in value, leading to greater sharing of data and increasing risk clarity.
With historical risk codified in trillions of rows of behavioural data, traditional risk transfer will become increasingly transactional and automated. Underwriters will turn their attention to the risks of the future, working with their market counterparts to develop new services based on the trends they are seeing. The lines between reinsurance and insurance will become even more blurred than they are today, with underwriters becoming portfolio managers, tasked with deploying capacity in the most efficient ways.
The role of the broker will shift away from placement, towards becoming risk service providers, combining expertise with analytics and technology to advise clients on their risk profile. At Concirrus’ Power20 Summit last month, Marcus Baker, Global Head of Marine and Cargo at Marsh JLT Specialty outlined the company’s vision for the digital future of broking. He stated that in today’s market, its broking value is based upon its personal experience and often its personal relationships. But tomorrow, he expects their value to be based upon their access to, and their analysis of, data.
At the same summit, brokers, insurers, P&I clubs, reinsurance brokers and reinsurers came together to challenge traditional trading relationships and discuss the possible opportunities of collaborating around digital data and analytics.
Although there will be challenging discussions ahead, this is an indicative sign that many of today’s market leaders across the value chain are quickly recognising the wealth of opportunity that lies ahead. This will come about, not simply through the adoption of digital technologies, but, also coming together to build a new insurance ecosystem that guarantees a more sustainable and profitable future.