Trade voice: Airmic's John Ludlow on becoming risk partners

In a world where data is king, businesses are hungry for strategic risk intelligence. However, knowing how to access and process data in a way that will add value remains a challenge. The sheer volume of data can be overwhelming.

The insurance industry is well placed to fill this gap. Insurers have access to rich sources of information not available to most businesses, combined with the expertise and experience to convert it into something that will provide risk managers with practical support.

Progress

This demand for data-driven intelligence services is a huge opportunity for underwriters to demonstrate their continuing relevance in the face of growing pressure to commoditise their products, especially as artificial intelligence approaches.

Insurance sold to our members is already being supplemented by ‘add-ons’ such as risk advisory and modelling services. Meanwhile, some insurers are prepared to take on clients with poor levels of risk maturity in order to take them on a journey to reduce risk.

Insurers that put capital at risk in this manner do so partly to build long-lasting and valued relationships. In the process, underwriters gain a better understanding of exposures, while buyers who demonstrate excellent risk management obtain cheaper premiums. For emerging risks, underwriters can collect data in a structured way, forming insights and developing new lines of business and the risk advisory services that support them.  

More to be done

At least that is the theory. While some insurers have made huge progress, there are instances where data is left in silos instead of being turned into information that clients can use to improve their risk profile. Meanwhile, there remains a strong focus on claims history such that improved risk profiles are not always rewarded.

Airmic members enjoy generally positive, long-standing relationships with their insurers. However, for the most part, the end result is transactional and product-focused. The new advisory ‘add-on’ products are viewed as just that – add-ons. Yet it is in the interests of both parties to develop a much more closely aligned relationship in which they become risk partners.

A new mind-set

Mind-set needs to change for both parties.  Advising clients how to reduce risk and add strategic value must become a priority for insurers. At the same time, risk managers must be more proactive in seeking help and sharing internal risk information. Businesses can be reluctant to disclose their vulnerabilities, especially when doing so may result in tougher premiums. Instead, they must recognise that success comes from confronting the brutal facts, and that insurers have the potential to offer unique insight.

Scenario planning is a case in point. Some insurers offer scenario planning services in which the key players – including insurer, broker, lawyer, loss adjuster and client – thrash out a claims scenario. This can reveal areas for change, both to the policy and to the client’s internal processes, and so increase the effectiveness of the policy.

This is an example of how the client-insurer relationship can work best. We need more of this type of approach, and businesses should be more proactive in facilitating it.

Becoming risk partners

Although insurance will continue to be a vital part of risk management, our members increasingly prioritise risk reduction over risk transfer. And they seek new products – cyber being the most obvious – that require the underwriter to have an intimate understanding of the client’s business.

This opens a real opportunity for insurers to become embedded with their clients. This will require a shift in business model – and a shift in relationship – for insurers and their clients to truly become risk partners.