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Market View

‘The Third Wave of Innovation’ Brings Growth Opportunity for Brokers

Aon Benfield cites growth opportunities as technology becomes more and more integrated into the industry.
By: | October 12, 2017 • 5 min read

A new report from Aon Benfield points to the on-demand economy, cyber risks and Insurtech as areas of potential growth opportunities with big impact on brokers, insureds and their clients going forward.

Insurance On-Demand

Have you ever headed out to the airport or for a night on the town in the care of your friendly neighborhood Uber driver? Perhaps you skipped the vacation tourist traps and spent your last getaway in a quaint cottage you found through Airbnb.

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If so, you’re part of the on-demand, or gig, economy — a sector that presents opportunity and disruption to the traditional insurance model, according to Aon’s report, entitled “Global Insurance Market Opportunities: Re-Imagining Risk Management.”

As more of these on-demand services populate the marketplace, insurers will need to rethink how assets such as cars or homes are covered under a policy, said the report.

The industry projects that, by 2020, 40 percent of the total U.S. workforce will be independent workers in the gig economy. The increasing commercial use of cars and houses enables insurers and reinsurers to start developing new and enhanced products and to engage more creatively in the thought process behind insurance product development.

“The true transformation will happen as we re-imagine risk management altogether,” Paul Mang, Aon’s Global CEO of analytics, said in a statement released alongside the report.

Consumer trust, safety, consistency in service quality and data privacy pose risks to the on-demand worker and business. On-demand transactions are temporal, episodic and small compared to traditional insurance, and insurance products are geared toward specific coverages.

Paul Mang, Global CEO of analytics, Aon

Aon Benfield believes the insurance industry can play an important role by promoting standards for security and risk mitigation across on-demand economy platforms. Technology, the report said, plays an important role in addressing on-demand insurance.

Mang said that collaborations, or “open architecture innovations,” will be key in creating net new growth, even though it may be difficult to streamline in the current insurance environment. This type of system, Aon suggests, would set operating standards while allowing for a great deal of flexibility and permutation.

Take Google Play and the Apple Store for example. These platforms, while servicing different industries, are held together by a set of rules and norms to provide sufficient security to their many buyers. Aon believes successful insurance agencies would treat open architecture in much the same way — servicing individual clients while remaining invested in a set security model.

Cyber Risk Spreading

Cyber, the report said, is a “far-reaching, enterprise-level” risk. Despite best efforts and effective security programs, hackers continue to infiltrate companies via the digital, connected world. A most recent example would be Equifax’s data breach in late May, which compromised Social Security numbers, driver’s license information and credit scores for nearly 143 million Americans.

Aon reports 45,000 known cyber incidents this year alone. Cisco Systems detects 1.5 million different kinds of malware daily. According to AM Best, insurers wrote more than $1.35 billion in cyber insurance policies in 2016 — a 35 percent increase from 2015.

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In the past, cybersecurity has been viewed primarily as a technology issue. But cyber impacts every avenue of a business — from finance, operations and human resources to customers, brand and regulatory compliance. Therefore, Aon suggests a holistic approach to managing cyber risk and a move toward cyber resilience; traditional means will not cut it.

“Cyber risks continue to evolve, and insurance coverages keep changing along with them,” reads the report. “This continued evolution creates challenges for modeling, and nowhere is this more important than in the work of aggregation management.”

Cyber risks, casualty catastrophe risks and pathogen risks become increasingly insurable through collaborations with Insurtech companies, said the report.

The Move Toward Insurtech

CB Insights, which collects and analyzes data to predict emerging trends, has dubbed the current era of technological advances the ‘third wave of innovation,’ citing that the industry will likely see more change in the next 10 years than it saw in the last 100.

“The pressure on insurers to innovate is clearly growing and capital is flowing into the insurance sector as investors see an opportunity to disrupt the more than $5 trillion marketplace.” — “Global Insurance Market Opportunities: Re-Imagining Risk Management,” 12th Edition, Aon, September 2017.

The first wave came with the creation of the Internet, connecting people from across the world and supplying users with knowledge at their fingertips. Next, the birth of fintech democratized financial data, making it easier for businesses to utilize tech when creating better financial services for consumers. Now, we are turning to Insurtech.

“The pressure on insurers to innovate is clearly growing and capital is flowing into the insurance sector as investors see an opportunity to disrupt the more than $5 trillion marketplace,” read the report.

In the Insurtech realm, the report highlights that this fast-growing entrepreneurial segment could act as an enabler rather than a disruptor of traditional insurance. In 2016, more than 200 Insurtech startups gained $9 billion in investment. The report noted that today more than 550 Insurtech startups attracted nearly $14 billion in investment.

Insurtech utilizes technological innovations, such as artificial intelligence or wearables, to insure “ultra-customized” policies. Using data from Internet-enabled devices, Insurtech startups are able to price premiums according to observed behaviors.

In other words, Insurtech uses technology to save as much as possible.

Of course, growing technology brings its own share of growing risks. But the Aon Benfield authors believe that this uncertainty of technology acts as a driver of industry growth.

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“We know that the insurance sector is facing challenges in the current macroeconomic environment, so we should expect leading organizations in the industry to drive change,” Mang said in the statement. “We are already using technology to make us more efficient as a sector and to expand into emerging risk markets.”

In addition to cyber, Insurtech and the on-demand economy, Aon points to autonomous vehicles as another area for both growth and disruption. U.S. motor pure premiums are expected to decrease more than 40 percent by 2050, the same point at which driverless cars are expected to be fully integrated.

The report projects that the driverless technology may transfer accident liabilities from the owner to the manufacturers and software providers. &

Autumn Heisler is digital producer and staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession: Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

R&I: How did you come to work in risk management?

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

R&I: What is the risk management community doing right?

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I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

R&I: What could the risk management community be doing a better job of?

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

R&I: What emerging commercial risk most concerns you?

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

R&I: What insurance carrier do you have the highest opinion of?

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Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

R&I: What have you accomplished that you are proudest of?

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

R&I: What is your favorite book or movie?

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

R&I: What is the most unusual/interesting place you have ever visited?

The Grand Canyon. It is just so vast. A close second is Stonehenge.

R&I: What is the riskiest activity you ever engaged in?

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A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

R&I: What about this work do you find the most fulfilling or rewarding?

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

R&I: What do your friends and family think you do?

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]