Unlocking insurance industry innovation through collaboration
Julie Page, Chief Executive, Aon UK
The proposed combination of Aon and Willis Towers Watson will help enable the new Aon to combine our analytics, insight and technology to create new, more powerful predictive models – that look forward, and not only look back – and develop solutions at a pace not previously possible. Faster innovation and enhanced technology, greater analytical capabilities, complementary subject matter expertise, and our focus on long-tail risk will set us apart.
The world we live in is more dynamic and interconnected than ever before, however with that comes an increasingly complex and volatile operating environment for global businesses. Whether it is the changing workforce, climate change, access to capital, supply chain, geo-political risks, cyber-attacks or protecting intangible assets, there is a growing number of uninsured and under-insured risks.
As an industry we have never been better placed to understand, adapt to and mitigate those risks. While COVID-19 has presented the global insurance industry with an unprecedented and unique set of challenges - both from an operational and risk management perspective - so too has it presented us with an opportunity to drive innovation and digitalisation in a way that few of us could have imagined before the pandemic.
From an operational perspective we have responded well as an industry, thanks, in part, to an innovative mindset that facilitated rapid digitalisation and services such as Lloyd’s Virtual Room, which gives brokers a real-time view of underwriters’ profiles and risk appetites, and enables them to run virtual meetings with underwriters.³¹ At Aon, we successfully moved thousands of employees to a work from home environment almost overnight, and have continued to successfully serve our clients throughout the pandemic.
As we begin to tentatively look ahead to a post-pandemic future, it is more vital than ever that the UK insurance industry embraces innovation and harnesses the collective power of the London and global markets. Not only do we need to embrace positive innovation in ways of working, that have been accelerated during the pandemic, we also need to ensure that innovation in our products and our approach can keep pace with the increasingly volatile global operating environment and the growing complexity of our clients’ needs.
The insurance sector has phenomenal data and analytics capabilities, and is increasingly hiring experts in earth science, geoscience, actuarial analysis and other data-driven backgrounds. By combining centuries of scientific and industry expertise with the enormous volume of data accessible to the industry, firms can ascribe probabilities and model severity of almost all new forms of risk.
For example, Aon is using both its proprietary capabilities and leveraging emerging technologies to help clients better understand and manage the impact of volatile natural disasters and a changing climate. Our Impact Forecasting centre of excellence brings together scientific and data experts and insurance industry professionals to analyse the financial implications of natural and man-made catastrophes, and develop data-driven models for specific perils and territories where no models exist, or existing models do not fully meet client requirements.
We are also utilising data analytics to observe the impact of COVID-19 and develop models that will help to prepare us for future pandemic situations. Aon’s Pandemic Progression and Intervention Model focuses on measuring the impact of the removal or fine-tuning of economic, societal and political interventions on the rate of pandemic infections, severe and critical illness, and death. Our Talent Impact Modeller helps our clients evaluate the impact of the current crisis on their workforce and help them think through their talent planning and workforce cost options.
Looking to the future, the increasing data literacy of our industry will become ever more important. Insurance firms and experts need to look beyond their past practices and learn more about climate sensitivity, multi-model ensembles and the implications of a multitude of global socio-economic scenarios. We also need to embrace artificial intelligence and automation in order to improve the productivity of our collective workforce – over the past two years Aon has automated about 700,000 hours of work so that colleagues can take on other, higher-value tasks.
This type of innovation relies on a flexible and agile approach that facilitates knowledge and information sharing, and enables the industry to move quickly into a new space and address new and emerging risks. One way this can be achieved is by combining different technology investments and areas of expertise currently held by various major industry participants; in doing so enabling the creation of entirely new capabilities in risk assessment and product creation. The impact of these combinations could achieve results well beyond the sum of their parts.
Data lies at the heart of innovation
If as an industry we are to remain relevant to our clients, we must welcome and enable the disruptive outcomes of innovation, spearheaded by new entrants, start-ups and small firms – particularly insurtech specialists.
Because of the pandemic, we have embraced digitalisation in a way that most of us would never have thought possible 18 months ago. Insurtechs have capitalised on this newly whetted appetite for digital disruption with phenomenal success and are increasingly offering innovative solutions that will fundamentally alter aspects of our industry that have historically been slow to adapt to the pace of change.
At Aon we are committed to collaborating with emerging technology companies that support our efforts to provide innovative solutions and unique insights to our clients, and are working with a number of insurtech start-ups across digital distribution, analytics and data, the Internet of Things (IoT) and connected devices, and blockchain. For example, we are working with insurtech Athenium Analytics to build enhanced modelling capabilities for severe storms and develop a next generation digital platform that will enable insurers to identify high risk claims.³² We are also partnering with Oxfam and insurtech Etherisc to launch a blockchain based platform that delivers micro-insurance to over 200 Sri Lankan smallholder farmers who are at risk of losing their crops due to extreme weather.
Just as the UK is the global hub for specialist insurance, we are increasingly becoming the best market globally to launch and grow an insurtech business. According to the industry trade body Insurtech UK, British insurtech firms attracted 48 percent of all investment in European insurtech in 2020 – cementing the UK’s position as the largest insurance market in Europe.³³
It is incredibly telling that, despite a turbulent year, in 2020 total global insurtech investment reached an all-time high of US$7.1 billion, representing a 12 percent increase compared to 2019.³⁴ Insurtech innovation is fundamental for the future of the UK and global insurance industry, both in terms of addressing new and emerging risks and in embedding digitalisation and innovative ways of working into our operating models. It is incumbent on all of us to embrace this technology as an enabler of positive long-term change within the sector.
Embracing the disruptiveness of insurtech
In an age of remote working it is tempting to see location as irrelevant to innovation. While technology has enabled global collaboration that was unthinkable even a few years ago, location still matters. The importance of ‘industrial clusters’ in driving innovation in technology heavy sectors has been recognised in academia and management practice for decades. When businesses from the same industry cluster together they all benefit from access to higher-quality inputs and the presence of supporting industries. This, in turn, leads to increases in innovation and commercialisation of new technologies.
But when it comes to the insurance industry, London offers more than just a cluster of inputs and infrastructure. The combination of history, institutional reliability and depth of expertise is globally unique and, when married with our thriving insurtech sector, makes the UK the natural centre for future innovation in our sector.
However, the importance of and need for further collaboration cannot be understated. In order to maintain the UK’s pre-eminent position as a global insurance hub it is vital that we learn from and embed the best of what our international partners have to offer in terms of insurance expertise and innovation.
Building on this foundation, it is our collective responsibility to ensure that we are encouraging the disruptive influence of new ideas. So much of the insurance industry is human-led and will continue to be. But if our industry wholeheartedly embraces digital innovation, fostered within a collaborative UK and global marketplace, we will ensure that we can adapt to the needs of our clients in 2021 and beyond.
The importance of collaboration
Innovation has always been at the heart of the London insurance market. In the 1870s a visionary underwriter called Cuthbert Heath laid the foundations for Lloyd’s to transition from what was then a hugely important centre for marine insurance policies into the global centre for insurance it is today, by introducing non-marine policies into Lloyd’s for the first time. When writing the market’s first reinsurance and burglary policies, Heath could not have known how his forward-thinking approach would set the tone for the future of London market innovation. Yet, 150 years later, the UK’s insurance sector is continuing to lead the way.
31 Lloyd’s, Virtual Room
32 Aon (2020), Aon enhances its severe convective storm modeling capabilities in collaboration with Athenium Analytics and Aon (2020, Aon collaborates with Athenium Analytics to Identify high-risk claims through predictive analytics
33 Insurtech UK (2021), 2021 Blueprint
34 Willis Towers Watson (2020), Quarterly InsurTech Briefing Q4 2020