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It’s a pleasure to be here and help lead the ABI's participation in this two day event. As the leader of the leading industry trade body for the last two years, I have always been clear that how insurance and long-term savings responds and adapts to the digital revolution will be decisive to our future.
I will use my remarks today to touch on four areas. Firstly, to assess the main ways in which the digital revolution is affecting the industry and our customers, secondly, to highlight the other 'macro trends' which are competing with digitalisation to change our world and thirdly, to offer my assessment of the relationship between InsurTech entrepreneurs and the incumbent market providers.
Finally, I will consider briefly some of the challenges which face all providers, new and old. This is a landscape which is changing on a constant basis and which feels very different from the industry I joined eight and a half years ago so there is no shortage of interesting areas. Inevitably in opening remarks, I will be touching on a number of themes lightly rather than exploring any in depth but I'm very happy to elaborate in any Q&A after the speech.
1. How the digital revolution is affecting the industry and our customers
Let me start with a confession. I am a History rather than tech geek - which may make me a minority around here - but the advantage of this is that I am very into revolutions. American, French, Russian; I have read about them all for much of the last 30 years as a student, for pleasure and now increasingly to help me unwind from the more stressful parts of my job.
So I look at the so-called 'Digital Revolution' looking to see if it justifies the 'R' word; does it forcefully throw over the established order that preceded it with a new way that will last? Does it impact a wide range of lives and human activities in complex and multi-faceted ways?
Does it make it impossible to consider returning to the ways of the recent past, creating a divide that seems impossibly wide despite the small number of years that exist between the old world and the new?
I think the spread and reach of digitisation in our modern world does meet these tests - whether it is in the exponential increases in processing powers, the spread of connectivity, the volume of data produced or the development of AI and autonomous technology - but like many of the major revolutions in history, change is felt by different parts of the economy at different times.
Arguably, insurance has been relatively late to some of the most obvious impacts which is why many of you have spotted commercial opportunities. But I think it is undeniable that the changing is now affecting our industry very profoundly in five ways I will touch on briefly.
A. Technology solutions
Here we have seen both opportunities and challenges. The challenges have been the much-documented issues many parts of the sector have had with legacy systems that were built in a very different regulatory, distribution and commercial environment. At times, the demands of these systems have stifled innovation and rapaciously absorbed IT budgets as both management time and money has been diverted into them.
I think we are over the worst here; many firms are now ring-fencing these systems from their current and future business systems, others are selling the business to specialist providers, others are re-platforming them.
The experience has led most of today's executives to invest in IT infrastructure that has adaptability and future functionality at its core rather than all-singing and dancing systems for today that rapidly fail the future-proof test.
Equally we have seen considerable investment in the analytical capabilities needed to deal with the massive volumes of increasingly unstructured and varied data generated. I always find it an astounding statistic that we have created more data in the world since 2014 than in the whole of human history to that point, but only analysed 0.5% of it. Even if 95% of that data is of no value or interest whatsoever - which often feels like a typical day on my social media feeds - the remaining 5% probably offers tremendous potential to serve customers better through more accurate and fairer underwriting and claims management and greater engagement with their needs and requirements.
B. A second theme I want to touch on is the increasing appetite of insurers and long-term savings providers to use digitisation to innovate effectively for customer-facing business.
We see this collectively in projects like the Pensions Dashboard prototype but also right across the market - a huge change in the last five years. Examples of this are:
- Partnering with start-ups or major players running their own start-up incubators.
- Partnership with other established tech organisations to enrich data collection and analysis.
- Buying start-ups; sometimes this offers a better chance of a return on investment than trying to develop the same capabilities internally.
- Changing the structure of the business to give leadership of digital the power to shape the whole business
- Hiring top tech developers from across the economy - even luring people from gaming to work in insurance. It has all been done.
These developments can only be good for a competitive market and the health of the UK industry and, most importantly, for customers who should, over time, find a more dynamic underwriting, claims and engagement process than they get or want at the moment.
C. However with these digitally-enabled market opportunities comes risk, most obviously cyber.
For people of my generation, Cybermen were large silver creatures with scary robot faces who gave Dr Who a run for his money. Now alas, Cyber is an altogether more sinister foe challenging our perceptions of our own security across our economy, critical national infrastructures, our democracies and our personal affairs.
While Cyber insurance presents a commercial opportunity for our industry, the operational and underwriting risks posed to insurers - big and small, new and old - requires us to focus as hard on security as we do on innovation.
To help serve our social and economic function of providing widely available insurance against these risks, we need to take the data deficit on cyber breaches. That is why the ABI has been calling on the Government and the ICO to make mandatory reporting of breach data from the General Data Protection Regulation available to insurers in useable anonymous format when the GDPR comes into force next year.
D. If cyber is a new risk, reputation is a very old one.
And a critical part of navigating the digital revolution effectively is to understand and address the concerns of those customers and stakeholders who are nervous about their privacy and the availability of affordable insurance products in a world driven by ever more granular underwriting data.
Again, this is a challenge for all of us because the permission levels between industry providers and the public are not fully set yet, nor are the regulatory, political and media 'norms'. Data permission is essential but not sufficient; as customers we will still continue to expect providers to act responsibly with our data and not use the information asymmetry between customer and firm to exploit us in ways that feel uncomfortable or outside of norms we have already accepted. If we get these judgements consistently wrong as an industry, we can expect to be subject to legislation and regulation to force us to do the right thing; a fate we should all be keen to avoid but which has happened consistently in other markets both here and abroad.
There is a different route. The more firms seek to partner with their customers and have an engaged relationship with them, the less likely those customers will feel they have been exploited - fairly or unfairly. The work of some health and protection insurers with FitBits and gym memberships are a good example of a consented relationship with perceived benefits for both sides of a more dynamic sharing of data. Equally, the marketing of telematic devices and apps has begun to shift to a positive view such as families competing to be the safest driver rather than a sinister black box looking out for every sign of sloppy driving.
More widely, a more active and sophisticated use of data can help provide products that are better tailored to an individual’s circumstances and in some cases provide products to currently excluded sections of the population. It is not hard to see the attraction to customers of being able to insure their family and possessions holistically rather than piecemeal in an increasingly dynamic and efficient experience.
E. This takes us to the development of autonomous technology, most obviously in vehicles but also increasingly apparent in connected homes and business premises.
This technology poses as profound a test for the insurance industry as the transition from horse to car did over a century ago but I am not one of the pessimists who feel this will leave the motor insurance sector without a market because at this stage we are assured that autonomous vehicles won’t crash. We are still at the relatively early stages of the mainstream use of this technology so it seems very early to be deciding there will be no risk to insure, even if it a safe bet that over time this risk will look and feel very different from much of the current market.
Just as exciting as the prospect of semi or fully autonomous vehicles is the increasing opportunities posed by technology to offer whole person insurance covering all their risks, not segmenting them into product line customer transactions. If you add in the increasing utility of individual 'just in time' insurance for car journeys, sharing economy transactions or individual experiences we can all see a world where the partnership between insurers and their customers is alive and well but in a much more dynamic partnership than the analogue world made possible or desirable.
So if these are five of the ways in which the digital revolution is impacting on insurance, what are the other macro trends which also play a part?
2. Other Macro challenges facing our industry and the customers we serve
I think it is worth considering these briefly because innovation, investment, regulation and public attitudes towards technology do not take place in a vacuum. Indeed as a sector, insurance is more closely interlinked with public policy and regulation than most other parts of the economy and will always be so given its scale and public policy utility. Let me highlight three:
A. Our ageing population.
The extent to which our western populations - and many in the East too - are getting older and living longer poses huge challenges which we have only just begun to grapple with. The falling ratio of workers to retirees is often commented on but the social and economic challenges of people living for thirty years post-retirement, the impact of dementia on our health and care systems and the mismatch between our post-war welfare system and the modern world is not examined anywhere near enough.
This obviously matters for those in the long-term savings, protection and health markets who will be writing contracts and making promises which have to survive contact with this world. But it is important for retail and commercial lines general insurers too; there will be significantly more older customers who will have economic power and expect - with the full support of regulators - to be treated fairly throughout their ever-longer later stages of life. How far do we as an industry really think of these customers' future needs?
B. Our changing global economy
Global economic and trade norms are moving fundamentally too. For much of the last 25 years, the emphasis has been entirely on how best to deregulate and liberalise trade, not whether to. The cumulative effect of this has been an explosive and transformational period of globalised economic growth, the fastest in the history of humanity. Irrespective of whether this trajectory continues apace given the political headwinds, the reordering of economic power between East and West is permanent with the economies of AsiaPac due to significantly outstrip both North America and Europe by 2020 in percentage share of GDP.
Alongside this, we see the ongoing consequences of post-financial crisis economic norms. I will touch on regulation later but the ultra-'low for long' interest rates which have accompanied QE in the West and historically low sustained inflation levels have helped leave the state with huge deficits and created major challenges for all parts of the insurance and long-term savings business model.
C. Political Instability
Here is not the time for causal analysis about whether the economics has stimulated the political instability or vice versa, but it is undoubtedly a major issue for our sector - as for so many others - that we are in the middle of a profound period of political uncertainty in which western institutions, political eco-systems and voting patterns are all changing profoundly in ways not seen since the end of the Second World War.
Among the common threads between Brexit, Trump and US political gridlock and European political crises are the fissure of old party systems, a rise in populism driven by the votes of lower educated and economically vulnerable citizens and the impact of digital technology in reducing the power of some mainstream media organisations. All of these trends pose challenges for a sector as closely interlinked with the political eco-system as ours and firms now have to operate with risk approaches that reflect this, lest we find ourselves in the crosshairs.
So are these all issues just for incumbents to worry about? I would argue, no, but let's consider the inter-relationship of incumbents and innovators so far.
3. Relationship between InsurTech entrepreneurs and incumbent providers
As today's attendee mix demonstrates, even dividing the world into entrepreneurs and existing providers, disruptives and incumbents feels increasingly like a false dichotomy. To be clear, I don't think that statement would have been true several years ago when the narrative of the new usurping the old captured a zeitgeist in the wider FinTech world. But increasingly I think we are seeing a fusion of these forces in a way that is likely to be healthy for the sector and good for our customers. Why?
Well, collaboration is increasingly the order of the game between start-ups and incumbents; not surprising given how quickly even the most successful start-ups run through cash, the strictly regulated nature of the sector and the attractions for both side of 'bolt-on' partnerships to innovate in a particular section of the market. This generation of insurance and long-term savings CEOs see how much change they have to oversee to meet both their existing customers' needs and meet new ones and so they are increasingly happy with a range of arrangements with entrepreneurs to find nimble ways forward.
This needn't all be for profit either. The development of the Government's pension dashboard prototype, which the ABI has project managed, is also an example of this with a mix of pension providers and tech firms, large and small, working together to figure out the best ways to build a pension finder service.
More broadly we are seeing InsurTech collaboration within the industry across the piece, GI and Long-term savings, front office and back office, commercial lines and personal lines, much of it driven by a desire to make processes more efficient, better understand risk, manage the huge volumes of data available and to help provide customers with the personalised, flexible and user-friendly services they increasingly demand.
Of course many of the start-ups in this market are not insurers at all. Given the significant regulatory and capital barriers to entry for newly authorised insurers - and I speak as a founding director of Flood Re so this is a process I have gone through myself - it is not surprise that many find it a more compelling proposition to focus on the tech, the processes and the customers while partnering with established firms to provide safe, well managed capital.
From the ABI perspective, I know many of you are not natural ABI members. But this doesn't mean we are ignoring you or do not want to support and learn from you. We have developed a specific Associate membership programme - just £499 - for start ups which provides access to our market data and subsidised access to our events. We are also working with Shân Millie as our first Tech & Innovation Associate (co-editor of the InsureTech Book) to build our contact and collaboration and to build on the events we have already done in this space.
4. Challenges
But as many of you will know better than me, this is not plain sailing.
Despite the excellent work done by our hosts, the FCA, with its Innovate and Sandbox programmes, I am sure they would also be the first to agree that the regulatory barriers facing entrepreneurs remain formidable, especially in securing authorisation. Regulators face their own tensions between protecting policyholders and harnessing the changes in our modern world towards more innovative solutions and healthier markets so there remains no alternative but to continue to work this one through and build as much awareness and comfort with regulators as possible and seek to continue to build industry standards and best practice for this new, more sensitive data world.
Equally, we as a sector have to be the protectors of our own reputation and indeed, work to enhance it. While the operation of our market up to this point has not exactly resulted in record approval ratings, it is nonetheless vital to ensure that the process of innovation involves the application of emotional as well as artificial intelligence. A fully connected home and lifestyle may seem attractive as well as logical and inevitable to a technology innovator but the Daily Mail may have a different view on the extraction and sharing of data required to deliver it. Active public permission for how we use their data remains vital for our sector across all lines of our business. They may be prepared to agree the Ts&Cs of an exciting new leisure app without reading them but we should not take that as a reliable indication of attitude to insurance and long-term savings products. Nor – despite the proponents of gamification – is the purchase or insurance or long-term savings ever likely to be a form of entertainment or social communication. In the words of one of my colleagues ‘Although the future will permit 24 engagement with your insurer, those who do this will still be considered sad’. He has a point. Our products are still likely to fall at the reluctant end of the purchasing spectrum and those that are not compulsory will still need to be sold.
This means we have to continue as an industry to be curious and forensic in our understanding of customer attitudes to innovation and the relationships they want to have with us. This is especially true as the spectrum of customers gets ever wider from millennials to 90 somethings. While it looks like customers will increasingly have a more dynamic relationship with their providers centred around partnering on risk management as much as static provision of actuarial data, it will be challenging for providers and intermediaries to get this right most of the time with most of its customers.
Conclusion
So this feels like a good time to be taking stock of many of these challenges over the two days ahead. Despite highlighting some of the issues, I feel hugely positive about the opportunities posed by InsurTech for our customers, our sector's reputation and our ability to meet our wider social and economic purpose. The ability to engineer more active relationships with our customers, to risk manage and partner more effectively and to help the UK thrive economically are all huge opportunities.
I wish all of you success in your chosen area and look forward to an increasingly vibrant and thriving partnership between everyone in our sector. We have a big and important task ahead.