Beyond the Edge of Tomorrow…

Sounds like a Hollywood sequel, does it not? Actually, we are alluding to a recently published PwC report, entitled “Insurance 2020 and beyond: Necessity is the mother of reinvention”, part of a series of scenario analyses (dating from 2010) of what the (re)insurance industry might look like by 2020 and beyond.

Regular readers of our “Insights” will know that we pay particular attention to trends in the threats, risks and opportunities facing the (re)insurance industry, so it always interesting to read the views of others. It was instructive to note PwC’s comment that the industry’s CEO’s currently have a greater perception of disruption than those in any other commercial sector. While we would not rank order such perceptions, we would certainly agree that any CEO who is complacent (if there are any left!), is unlikely to stay in his/her role for much longer: Witness the two major transactions announced within the past week – Willis/Towers Watson and Ace/Chubb.

We have also written of the increasing importance of being able to analyze and understand seemingly endless torrents of data, so it was pleasing to see emphasis on the “game changer” in analytics, moving from descriptive and diagnostic to predictive and even prescriptive (i.e., determining and ensuring the right outcome); and this was a key them of the report. However, what the commentary did not emphasize was being able to find the appropriate analytical capacity (whether human or AI) to do so;  and then attract and retain it within the industry – something which we expect is challenging in a world obsessing about the next technological “unicorn”.

One statistic that struck us was that, at 2.7% of emerging markets GDP, insurance penetration is barely 1/3 of that in so-called advanced economies at 8.3%. It seems inevitable to us that, over time, the levels will converge as long as insurers can adapt and develop appropriate products. However, while the opportunity to build new markets is clearly significant, so are the risks (as the report points out), because of the concentrations that arise from rapid urbanization and inter-dependency. Therefore, at Awbury, we remain of the opinion that the potential for creating new products (such as our E-CAT suite), which would re-allocate current spending on insurance in advanced economies, is at least as significant. (Re)insurers are also going to have to be very comfortable that their data and models (many of which will be new) are sufficiently predictive (including addressing tail risks) to enable them to select and price risks effectively.

Somewhat disconcertingly, a dichotomy became visible in terms of the perceived importance of data analytics (with 70% of a 2014 PwC survey stating that these have changed the way they make decisions and 93% of CEOs believing it to be more strategically important than any of digital technology) and the value ascribed to them (40% seeing limited benefit in their role).  Perhaps more tellingly, more than 30% of participants apparently believe that “senior management lacks the necessary skills to make full use of the information”!  This begs the question of whether execution and implementation will match intent.

At Awbury, we believe that the ability to obtain, understand and apply relevant data to all aspects of our business model is an essential core competence – and that includes those of us whose working lives pre-date the introduction of the PC…!

– The Awbury Team

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