Risk Insider: Tony Boobier

The Value of Experience

By: | May 23, 2017 • 3 min read
Tony Boobier is an experienced independent consultant focusing on insurance analytics. An international speaker, commentator and published author, he lies awake at night thinking about the convergence of insurance and technology. He can be reached at [email protected]

Over dinner I was discussing the importance of experience with professional (and senior) insurance colleagues. We spoke about new business models, blockchain, cognitive analytics, and how AI would ultimately change our industry and our professions.

Advertisement




One of them raised his eyes to the ceiling. “I don’t know if experience matters any longer,” he said, and he had a point. “After all,” he went on, “aren’t we increasingly looking at the way the insurance industry operates, and tearing up the rule book?”

As Thomas Edison put it, we can keep to the rule book, or we can make progress.

I wondered afterwards about what my colleague had said, especially about the topic of experience. When I look at my own CV covering nearly four decades, it’s as if the experience gained over the first three decades is no longer relevant. Isn’t it only the most recent stuff that matters? And who really cares about hard-earned professional qualifications based on an old-school syllabus?

If knowledge is that which we believe in, then isn’t experience how we apply that knowledge?

I’m not the only one to have thought about the issue of experience. As distinct from knowledge, experience seems to be something much deeper. If knowledge is that which we believe in, then isn’t experience how we apply that knowledge?

Let’s have a quick history lesson. Knowledge, according to the philosopher John Locke (1632-1704), comprises three levels: intuition, demonstrable knowledge (where we make comparisons), and faith or opinion, which Locke accepts isn’t really knowledge at all but only something we believe in.

(By the way, Locke was around about the same time that the insurance industry as we now know it was first conceived in the coffee shops of London, but that doesn’t make him an insurance expert.)

Nowadays we often tend to equate knowledge mainly with academic and other professional qualifications, which seems to miss at least some of the point. In London, cab drivers who learn the streets of London and can navigate without Sat Nav are said to have “the knowledge.”

Locke also had something to say about experience: If we imagine the mind to be a blank piece of paper, experience is where knowledge comes from. Put another way, he said that all knowledge comes from experience. It seems that we really need to know can’t be learned in a book.

So what’s this to do with insurance? The insurance industry is continually and increasingly being challenged to revisit traditional business models, some of which are tried and tested. Disruption is the name of the game.

Advertisement




Yet, Insurtech startups continually complain that more than other industries, insurance companies seem to comprise gatekeeper after gatekeeper, each being (in the opinion of these startups) ultra-cautious. “Why are insurers so slow to take on board my great idea?” they say.

Perhaps such reticence is based on the experience of an individual who intuitively isn’t certain about proposed changes, and has no option but to treat these new ideas with an element of skepticism? Or maybe it’s a byproduct of an insurance industry whose ultimate success depends on the evaluation of risk, entirely based on experience?

The impact of change will be enormous, and the consequences of failure could be expensive. But we shouldn’t forget that the insurance industry underpins the financial security of companies and individuals, and shouldn’t be attracted by bright shiny technological baubles.

More from Risk & Insurance

More from Risk & Insurance

2018 Most Dangerous Emerging Risks

Emerging Multipliers

It’s not that these risks are new; it’s that they’re coming at you at a volume and rate you never imagined before.
By: | April 9, 2018 • 3 min read

Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation.

Advertisement




Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.

More recently, underwriters expressed fears about the aggregation of risk from lawsuits by football players at various levels of the sport. Players, from Pee Wee on up to the NFL, claim to have suffered irreversible brain damage from hits to the head.

That risk scenario has yet to fully play out — it will be decades in doing so — but it is already producing claims in the billions.

This year’s edition of our national-award winning coverage of the Most Dangerous Emerging Risks focuses on risks that have always existed. The emergent — and more dangerous — piece to the puzzle is that these risks are now super-charged with risk multipliers.

Take reputational risk, for example. Businesses and individuals that were sharply managed have always protected their reputations fiercely. In days past, a lapse in ethics or morals could be extremely damaging to one’s reputation, but it might take days, weeks, even years of work by newspaper reporters, idle gossips or political enemies to dig it out and make it public.

Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

These days, the speed at which Internet connectedness and social media can spread information makes reputational risk an existential threat. Information that can stop a glittering career dead in its tracks can be shared by millions with a casual, thoughtless tap or swipe on their smartphones.

Aggregation of uninsured risk is another area of focus of our Most Dangerous Emerging Risks (MDER) coverage.

The beauty of the insurance model is that the business expands to cover personal and commercial risks as the world expands. The more cars on the planet, the more car insurance to sell.

The more people, the more life insurance. Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

As Risk & Insurance® associate editor Michelle Kerr and her sources point out, growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.

This aggregation of uninsured value got a recent proof in CAT-filled 2017. The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of it was uninsured.

Advertisement




This uninsured gap threatens to place unsustainable pressure on public resources and hamstring society’s ability to respond to natural disasters, which show no sign of slowing down or tempering.

A related threat, the combination of a failing infrastructure and increasing storm severity, marks our third MDER. This MDER looks at the largely uninsurable risk of business interruption that results not from damage to your property or your suppliers’ property, but to publicly maintained infrastructure that provides ingress and egress to your property. It’s a danger coming into shape more and more frequently.

As always, our goal in writing about these threats is not to engage in fear mongering. It’s to initiate and expand a dialogue that can hopefully result in better planning and mitigation, saving the lives and limbs of businesses here and around the world.

2018 Most Dangerous Emerging Risks

Critical Coverage Gap

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.

Climate Change as a Business Interruption Multiplier

Crumbling roads and bridges isolate companies and trigger business interruption losses.

 

Reputation’s Existential Threat

Social media — the very tool used to connect people in an instant — can threaten a business’s reputation just as quickly.

 

AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field.

 

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]