Insurance and reinsurance, as a product set, are not particularly responsive today.
Yes, it (the product set) can meet the broader expectations of billions of consumers and hundreds of millions of businesses around the globe, as financial tool to transfer risk.
Or at least they think it does, based on what little they often know about it.
But is the insurance or risk transfer product actually serving their needs, when they really need it most?
Following on from my thoughts on rethinking and redesigning re/insurance for the modern age, where I questioned whether insurance, reinsurance and risk transfer really responds to its users needs (at the right time and in the right way).
I thought it might be interesting to dive a bit deeper into the responsive angle.
In that post I wrote:
Given the way our lives and businesses work, in this fast-paced and rapidly changing environment, we need something new and more responsive than this.
Something more responsive to our needs, that dovetails into the cycle of our lives, businesses and communities.
What we need are shock-absorbers: financial and risk protection products that smooth out the bumps in the road that might otherwise have knocked our life or business off course.
Products that respond right when we need it, providing just enough in terms of recovery to push us back on track, helping us to help ourselves right at the point it’s most needed.
Insurance can become this shock-absorber for our lives.
Insurance and reinsurance is often more like a time-delayed source of risk capital, with benefits only coming at the point the pain has already become so significant that it can often prove too late anyway.
But we’re used to this now, particularly in the business world, where insurance can payout after it’s too late and too little to help a firm avoid significant financial impacts and sometimes even bankruptcy.
In the majority of use-cases, insurance and risk transfer should be about responding at precisely the right point in time (when it’s first needed and can be most helpful) and in precisely the right way/amount required (no more, just enough to steer you back on-course).
The right time and right amount/way are both key.
Get that wrong and you’re over-paying (expensive), or over-complicating the product itself (confusing & disappointing for the customer), and likely also over-burdening the insured during its time of recovery (cognitive load is high).
Better to deliver only what is required, but most importantly at precisely the point it can be of most use to the insured.
But how to be this responsive?
To have an almost sixth-sense for when a claim is set to be needed/made and then delivering just what is required to smooth out the volatility (to life or business) that is being experienced?
Of course it largely comes down to data, access to it and the ability to understand/use it.
The more of it (data) the better. The more granular the better. The more real-time it’s delivered, on an ongoing basis throughout the policy term, the better. The more localised and personalised it is to the particular use-case in question, the better.
This is where I get excited (nerd alert) about anything that can provide real-time data insights to inform insurance, reinsurance and risk transfer responsiveness.
Enter the sensor.
Sensors and the data they provide are going to become key tools and inputs that allow for better risk transfer product design and development in the first place.
Insurance and risk transfer products are often created in what seems like the dark, with little visibility of what could or may happen. So decisions on pricing, triggers, responsiveness, are all taken using historical data and information derived from analogues and synthetic models of reality.
But, with sensors and the data they provide, you could be updating underwriting information, risk metrics, pricing, triggers, tweaking the responsiveness of the risk transfer product all in real-time, creating something that really does offer the kind of responsive experience users demand (or should demand) from finance today.
Enter Cloudleaf (https://www.cloudleaf.com/about), an interesting start-up that I first heard of a while back, but it caught my eye again the other day.
Cloudleaf just raised a $26m round of funding (congrats!) and provides sophisticated digital and analytical solutions for better supply-chain improvement.
Internet of things (IoT), artificial intelligence, machine learning, Cloudleaf uses them all.
Buzzword heavy but for the right reasons, as these advanced technologies enable its services to map and understand, even predict or forecast, where the pain points are and how to optimise supply-chains for large organisations.
That’s interesting alone.
But given the IoT angle, which involves sensors and the resulting data that flows from them (don’t you know), Cloudleaf can deliver real-time intelligence into how a supply-chain is performing, for a single organisation but of course (extrapolated out) that could also provide intelligence on an entire industry chain as well.
Which leads me back to the future of insurance and risk transfer, as I strongly believe supply-chain disruption related business interruption coverages can be better designed and made responsive to organisations needs, through the use of sensors and advanced data analytical services + parametric inputs to risk transfer triggers.
Cloudflare could (should), if it isn’t already, speak to the likes of the world’s largest reinsurance firms in this regards (they may reach out to it anyway after reading this).
As, an integrated data analytics, sensors, AI and risk transfer approach to delivering business insurance coverage for supply-chain related risks could really be a responsive solution fit for the future.
Imagine a system that can forecast where pain is set to emerge in the system, calculate the potential impacts, release capital based on triggers calibrated using the data and supply-chain network health information, releasing just the right amount of insurance payment at just the right time for the customer.
That’s the idea of responsive risk transfer as a volatility-smoother, responding when its needed to even out the cycle of business (or our lives). A shock absorber, even a predictive and preventative one, for our lives and businesses.
That’s of course just one idea on the future responsiveness of insurance, reinsurance and risk transfer. But to me it’s a particularly compelling one that solves a coverage gap that exists today.
It also shows how data can enable responsive risk transfer and insurance product design, to deliver entirely new solutions that better meet client needs.
Thinking laterally similar models can fit to different challenging areas of the business world.
But, taking a step back, it’s the responsive model of delivering the financial protection in the right amount and at the right time (instead of the all or nothing of many re/insurance products) that I find a particularly interesting concept for the future of the industry.
That doesn’t always need sensors or ‘bigs-of-data’ to achieve it, sometimes it just needs someone to go back to basics, look at the user needs, design products appropriately for it.
It means more efficient use of capital for re/insurers, as well as opportunities to open up entirely new sectors and really work on closing gaps in protection.
More responsive re/insurance and risk transfer products can be created today.
In the future responsiveness should be a design tenet of every insurance and risk transfer product this industry creates, as it’s just a more satisfactory delivery model than the ‘claim and pray’ process we see today.
Risk financing based on intelligence, simplicity and user needs, intelligence furnished with data to design products that better meet the demands of our businesses and lives today.
More on the concept of risk transfer and insurance becoming more responsive in posts to come…