At WTW’s recent European Insurers Leaders Forum (EILF), speakers stressed the importance of effective portfolio management as the sector continues to evolve; here are some of the highlights:
The commercial insurance market is changing. Emerging risks, advances in technology and the shifting market cycle are already having a transformative impact. In this landscape, participants in WTW’s recent European Insurers Leaders Forum (EILF) discussed how the onus is on insurers to manage their portfolios more effectively than ever before – to think carefully about the shape of the cover they offer, but also about how they deliver value to policyholders.
The scale of the challenge is unprecedented. New threats, including cyber risk, are significant. The Covid-19 pandemic has forced insurers to think again about the breadth and depth of the cover they offer. Traditional approaches to risk prediction and management look increasingly out of date.
Commercial insurance poses distinct challenges compared to personal lines insurance, Ilya Kolmogorov, Group Chief Pricing Actuary at Zurich Insurance, told the EILF. "One of the main differentiators between personal lines and commercial lines is exposure,” he said. “Commercial insurance has a much more complex exposure footprint.”
Against this backdrop, the evolution of existing risks, such as climate change and supply chain disruption, necessitates new approaches to product design and pricing. The rapid advance of generative AI (GenAI) represents another major disruptor, with the potential to transform every aspect of insurance operations.
"We are talking about GenAI shaping every single operations area of the company,” argued Ilya. “If you look at the value chain and how insurance products are being distributed, priced and created, as well as how claims are settled, and how finance operates, each one of these areas can benefit from GenAI capabilities,” he said. “In many companies, they already do."
This shift is expected to accelerate over the next 18 to 24 months, with GenAI becoming an ever-more crucial tool for companies aiming to stay competitive and efficient.
Alongside disruption, insurers are also having to deal with the natural ebb and flow of the market cycle. The commercial insurance market is currently entering a softening phase, making it imperative to focus on maintaining profitability while simultaneously adjusting to change.
Iain Whittingham, Managing Director of Insurance Consulting and Technology, told the EILF that insurers often struggle to adjust their focus from top-line growth to profitability. “The problem is often the gearshift,” he said. “What is the method for that gearshift and thinking about that quite clearly?”
Agility is what gives an edge to companies that outperform. "The key differentiator is the speed of their decision-making,” said Iain, who pointed to the importance of leveraging data to manage the portfolio effectively, rather than relying on sentiment and instinct. “In the past, it would often take many months for people to make a decision to exit elements of a portfolio or to restructure” he said. “There was often an emotional attachment to the business."
Modern technologies and integrated data platforms facilitate faster and more effective decisions that strip out emotion. "The cycle time for those changes can be far quicker because the analysis that links across the different functions can be pulled together more effectively, " Iain added.
However, reaching that point takes effort. Insurers need to create reliable and consistent data practices and to build a common framework that ensures every technical function can work cohesively.
"You start by creating a single source of the data,” Iain said. “Let's have the premiums data, the claim data, the exposure data, and let's have all of those technical functions leveraging off of that data set."
Anand Patel, Director of Insurance Consulting and Technology, also stressed the importance of insurers bringing their technical disciplines together to drive decision-making. Effective portfolio management requires a unified data strategy and cross-functional collaboration, he told the EILF.
After all, portfolio management in the insurance sector is complex, involving multiple functions, including planning, reserving, pricing, and underwriting. Anand highlighted the operational benefits of integrating these functions through automation and analytics.
“It will be the insurers that move effectively and quickly that are going to outperform the market.”
Anand Patel | Director, Insurance Consulting and Technology
"If you've got claims insight early in the process, with early indicators of tremors coming out of reserving, which is looking at big populations of data and which has external benchmarks, you can spot stuff earlier,” he said. “In the market cycle that we're moving into now, it will be the insurers that move effectively and quickly that are going to outperform the market."
The challenge is to bring these insights together to create a holistic picture, using tools such as Power BI and GenAI. That will enable insurers to navigate the market cycle while staying focused on their strategic goals. As the commercial insurance market continues to evolve, companies that adopt a unified data strategy and foster cross-functional collaboration will be much better equipped to succeed.
As the insurance industry continues to evolve, it is vital that companies adopt best practices in portfolio management. In particular, investment in technology and data analytics is critical.
Companies able to harness the power of GenAI, automation and data analytics will be in a strong position to manage risk, optimize portfolio performance and achieve their business objectives.
Time is short. The commercial insurance market currently stands at a crossroads, with both challenges and opportunities ahead. In this fast-moving world, agile portfolio management is vital.
