“The fundamentals have not changed” – CEO on why digitalization may not always be the answer
“But the way we think about and do insurance has transformed dramatically”
As we move further and further into a digitized future, we also expose ourselves to newer risks – some still unknown or poorly understood. Despite the many benefits it can bring to a sector that is dealing with a staggering number of risks due to a changing world, there may be some benefits to slowing down and looking inside the backyard before going beyond it.
It’s a sentiment that’s expressed by Swiss Re Solutions CEO Russell Higginbotham (pictured above) in conversation with Insurance Business’ Corporate Risk channel, one that’s backed by almost 30 years in the global firm and a particularly restrained view on the sector’s most hotly discussed topic – artificial intelligence (AI).
“I think that there’s clearly a lot of talk around AI at the moment, and it clearly has a lot of potential in the future. That said, it’s probably a little bit overhyped as well,” Higginbotham said. “I see that some of the AI capabilities, they can take away some of the more menial tasks and give people more time, but I think for insurance there’s so much that we can do that’s closer to home and nearer at hand that’s going to be more impactful.”
Citing the availability of data as something that should be explored more, Higginbotham said that this aspect is “dramatically different” to what it was not too long ago. This particular data can be used for all aspects in the industry – whether it’s underwriting, portfolio management, claims, etc. – and as such he urged the industry to “not get carried away” by AI and focus on near-term things that insurers can do to make the prospects for the customer better.
“At the end of the day, what we all want to achieve is to have better value, well-structured policies in the hands of more people,” he said. “That’s ultimately what we’re trying to do in insurance; closing that protection gap is always the challenge. There’s more that we can do around that.”
“People still need insurance for the same reasons”
As someone who has been in the thick of insurance and risk management for a very long time, Higginbotham is veteran enough to tell that the industry is “massively different” to what it was 15 or 20 years ago.
“It’s an interesting one, because on the one hand, you’d say it’s massively different because of digitalization, availability of data, everything becoming electronic and virtual… whereas in the past, everything was more paper-based and there was a long slow process. In that sense, the industry really transformed, but on the other hand, things really haven’t changed. People still need insurance for the same reasons: to protect their lives, health, etc,” Higginbotham said.
In the same way it did in the past, he stressed that insurance is still trying to charge a premium that’s commensurate with the risk, as well as trying to bring in more people to the sector while making sure that they understand the risks that they’re bringing.
“To reiterate, the fundamentals of insurance have not changed, but the way we think about it and the way we do it, has transformed dramatically,” he said.
Despite his tepid views on AI, Higginbotham agreed that digitization and automation did wonders for some aspects of the industry, the most notable of which was the customer experience.
“If you think about things like underwriting – historically, you’d fill in a paper form, then you would go off and you’d wait a few weeks, you might get sent for a medical, then you need to wait for an appointment … then you’d have your medical, then you’d need to wait a bit longer – the time it would take to buy a policy would be somewhere between two to three months, which is a completely unsatisfactory experience,” he said.
Now, however, the claims process is built around electronic underwriting systems based on data that’s been built up over many years between hundreds of thousands of people. Higginbotham touted the firm’s own Magnum system, which has a straight-through processing rate of somewhere between 80% and 90%, meaning that customers can be accepted on the spot.
“I think these are the sort of things where the ability of the insurance industry to get people on board faster, to look after clients better during the term of the policy, and to pay claims faster has really changed a lot,” Higginbotham said. “What hasn’t changed so much, I guess, is insurance, for a lot of people, isn’t an automatic purchase. It’s not something they wake up thinking about; ‘I must buy insurance today.’ The pandemic changed that for a while, but even the effects of the pandemic raising people’s awareness… It wears off every time because other things come into their minds.”
“Digitalization is not necessarily the answer to everything”
Turning to the issue of legacy systems and the crossroads it finds itself on, Higginbotham said that COVID was a main turning point for the issue as well.
“I think there was a trend pre-COVID towards digitalization in the insurance sector, and COVID really had the impact of accelerating that, because you could no longer rely on face-to-face interactions. I think, in a sense, digitalization becomes a must-do – table stakes, if you will – to remain competitive in the industry in the longer term,” he said.
This reliance on digitalization meant that customers’ expectations were also changing. Higginbotham said that they now want speed, convenience, and flexibility in interactions with their insurer, but there’s still a major barrier: cost.
“We had a road show in Hong Kong about four or five weeks ago and we were talking about future topics like data and AI. The insurers on the panel, they kept coming back to legacy systems, legacy topics, and the challenges around these,” he said. “Nobody is starting with a clean slate; they’ve got to consider what they have at the moment, if it’s financially feasible to transfer over to new systems, whether they have to run a new code or an old code… It’s a really challenging topic for the insurers.”
Higginbotham also urged the industry to consider something in their digitalization journey, and that is its inherent necessity for the business at hand and the value proposition that it can add, not only to customers, but for the firm as well.
“I think that we should also remind ourselves that digitalization is not necessarily the answer to everything. Customers still want to talk to people when they’re dealing with complex products or big decisions or sensitive topics. Transforming your business into a digital business doesn’t necessarily mean you’re going to sell more products. It doesn’t necessarily draw extra customers into the net. I think people need to think quite carefully about their digitalization journey in the context of their wider strategy of how they serve customers and how they attract new customers into their business,” he said.
The future of risk management, and “the challenge we haven’t solved yet”
The future of the sector seems so ambivalent to many; Higginbotham said: “If I had a crystal ball.” That said, he did say that the future hinges on tackling a problem, one that has not changed since he first stepped foot in the insurance and risk management sectors.
“The fundamental challenge for the insurance industry is still the same: trying to get more people to buy insurance which is good value and well-structured. That’s the challenge that we haven’t solved yet, I would say,” he said.
It’s a challenge that he’s now trying to tackle as CEO for the relatively young Swiss Re Solutions brand. Using Swiss Re’s extensive risk knowledge database and existing IP, the division puts all of these assets into one place and consults with clients, non-clients, and other parts of the insurance and risk ecosystem about challenges and other aspects related to the businesses to make them more competitive and have better propositions for their clients.
Digitalization, Higginbotham said, will be more prevalent in the future, but for him there’s still something that needs to be addressed if the industry is to remain relevant.
“If you think about a life insurance contract, you go through quite the process to buy one. You apply, you fill in the form, maybe you’ll get accepted on the spot,” he said. “Now that you have the policy, the question will be: what happens between the start of the policy and the end of the policy? What sort of contact do you have with your insurance company? Not much, still, right? There are health and wellness apps out there and they appeal to a certain sector of the customer base, but for other people, the engagement between the insurer and the policyholder is quite limited.”
Alluding to this relationship as the heart of the matter for insurance and risk management, Higginbotham found it strange that such an aspect is overlooked as we strive towards a more digitized future.
“It’s kind of weird, in a way – the alignment of interests between the insurer and the policyholder is perfect, because the policyholder doesn’t want to die and the insurance company doesn’t want them to die, either. So, you think it’d be a good idea to build a better relationship between the two to try and make sure that happens, right?” he said. “I think there’s still work to be done in terms of ‘what does it mean to own an insurance company?’ and ‘how can you build a relationship between the parties?”
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