Building a high performance insurance culture

FRANK SCHEPERS: Good morning, Sina. Happy to be on the podcast. It's my first podcast. I think I spent countless hours listening to podcasts, but it's the first I do myself, so I'm quite-- a bit nervous.

SINA THIEME: [LAUGHING] Excellent. No, I've seen you jumping around various Insuretech conferences more recently. So I think it would be great to get your feel on how technology in particular, and software developments impact the insurance industry, and impact the way we do business. And obviously, there's lots of different angles to that, so maybe we can start with what technology would do to enhance risk modeling, and how it would change the way we are able to analyze risk.

FRANK SCHEPERS: Well, that always goes deep into some of the context. Let me start, I mean, first thing I want to make clear, when I listen to podcasts and people say, oh, I give advice to the entire world, I'm thinking, well, why do these people think they have the right to tell everybody how to do things? So I'm not telling insurance companies, or let's say, the managers of that, how to run the company, because I'm not running insurance company.

What I'm running is probably the biggest team of consulting actuaries, and the biggest insurance technology in our space, always depends on how we define that. And in that sense, a bit like I can talk about how we all go about what do we think we need to do for our technology, so it becomes of more value to our clients to enhance their business. And I think that's what I want to focus on.

SINA THIEME: Good. So how do you think technology has played into that in the last years?

FRANK SCHEPERS: Yeah, interesting. If you talk the last years, probably, we have to talk about, well, what happens up to when GenAI took off, AI, because I think that's at the moment is the big question, when people said, oh yeah, what's the latest thing on that at? At the insuretech conference, for example, I was somewhat honored to speak on the main stage. And at the stage, there was a purple stage just the room next door to it.

And before I had my session, there was a session about I think it was Hiscox transforming their underwriting cycle. And they're going from I don't know, months into seconds, something like that. And the room was crowded. Everybody was interested in that.

And I had done the session next door talking about more in general, how it is influenced. I think at the moment, a lot of hype is about how can you make things faster, more efficient. Data ingestion is a big point. So how do you get all the data sources together in order to do things? What we do as a company more starts after you have all the data in. So we are very interested about how we can make better pricing decisions, better underwriting decisions, handle your claims better, but really thinking about that, what is the clever algorithm, how to do that?

SINA THIEME: So I agree, I think that's one part of it. But I guess the other part that we are pretty strong at is actually identifying which data items are relevant, and could be relevant in the future, because that's the key. I think you mentioned multiple times in other conferences before, that people are always complaining they don't have the data, but it's not going to appear if you don't do anything about it. So understanding what you need to start collecting, so that you're in a better place in 10 years time, I think is something that yeah, is in our strong suit as well.

FRANK SCHEPERS: Yeah, but I think in 10 years time, I'm not sure whether all the insurers have time to wait for 10 years to do that. I think they need to start almost immediately. There was also a question on the Insuretech conference about, OK, will then also some the brokers wake up to that? And will the insurers play with them? I think it's just reality is like, we're going to a digital marketplace, so we need to really leverage what is there in terms of capabilities.

And if you say, well, we don't have the data yet, then you need to think about, OK, but which data do we have? How can we use it? How can we structure that? What are the data sources we can get externally, also, augment that? Yeah, maybe that's the first thing, is about thinking about how we can get there is a bit like, well, how can you start? I think is more the relevant question to it.

SINA THIEME: Yeah. And so do you see our understanding of risk just exponentially increasing the more data we get or what challenges are there.

FRANK SCHEPERS: I would turn it around. I think it's with new technology, new methods to use the data, which is there. Again, data ingestion is not an expert in that, but it's a bit like you need to have that. And once you have that, I think then you can apply lots of these clever thoughts, algorithms, that we are building to really make use of that.

And I would say is a bit like without that clever thinking at the back end, why should you collect data in the first place if you don't use it? But also, flip it around. If you don't have the data, you can't do the clever maths and decisions at the back end, yeah?

SINA THIEME: And I think that's where AI is actually quite interesting as well in terms of recognizing patterns where humans wouldn't expect any patterns, or dependencies, or so understanding which characteristics are actually relevant for defining a risk, or which characteristics increase or decrease risk. I think there was this example of thousands of people being asked by NASA to basically look at solar system pictures, and identifying various constellations of stars and stuff. And so it's a real team effort.

You give that to AI, and it basically sees stuff that the people didn't see because they were looking for squares or something, and circles, rather than triangles. So just being able to identify stuff without knowing what you're looking for, I think that's interesting. And I think that will really have an impact on identifying risk drivers as well.

FRANK SCHEPERS: Yeah, and it's as much about iden-- well, when you talk about identifying risk drivers. So the actuary in me, deep inside of me, and the risk manager tells me, oh, I need to see more risks. Have I thought about this risk? And what happens now is that all the insurers are aware that there are risks out there.

And for certain lines of business they say, well, there are big risks out there. I'm not really sure what they are. I don't have complete data. So what do I do? Well, I need to build in some security margin on that. I need to have a buffer.

And then you have a buffer on the buffer, which then ultimately leads to saying, OK, because I don't really understand the risks, I don't have the full data for it, either I price myself up to a level where nobody wants to trade anymore, or I say, well, because I don't have the data, I can't write that risk. And I think that's a bit like, I mean, one of the big themes that we have as a company, we want to close, or let's say, reduce the insurance gap. We want to bring more risk to the market in order than let's say, for our corporate clients, then to say, well, you can insure more what you have on better conditions.

And I think this is really the more you understand about the risk, the more you're able also to price it then really efficiently, and somehow reduce maybe also some of these security buffers. I think that's a big thing. I would expect really in the next years that something like the new, some ways to work with the data will not lead to, oh yeah, I get more exclusion to it, but something like, I'm more aware of the risk, and I can manage them better, and have better offers out there for the clients.

SINA THIEME: And I think insurers understanding the risks better also allows them to actually communicate those risks to policyholders better. So I was at a risk pooling event last week. And the risk pool is trying to make themselves basically, irrelevant in the next 15 years by shifting all of the risks to back to policyholders who are being asked to mitigate them, but also the private insurance industry.

And so it's a lot about actually telling policyholders, if you do X, Y, there, then you're going to reduce your risk on average by X if you install these flood proof doors, then this is what happens. So I think this whole concept around awareness of your risk and mitigation techniques, I think that increases as well for policyholders, not just insurers.

FRANK SCHEPERS: Yeah, yeah. Although, I'm also here by way of introduction, I'm a life actuary. I have to admit that as well, yeah? Also, life insurance and we see OK, why we put the risk back to the policyholder? I don't like that. It's a bit like, well, the insurers, well, they have certain like, the disability risk, being something like out of the job. They got a retirement risk.

So how do I make up for my living when I get older I'm out work with that? Yeah, something like, if something very dreadful happens to me, something like, who's looking after my family, all of that? All of these are risks I would not place to the policyholder. It's a bit like also that when you go to retirement-- and I'm coming nearer that age-- is a bit like, well, there's inflation risk, or the much I can save up to now if there's something else.

I mean, we've seen capital markets just last week, we were recording that at the end of April. You see markets swinging up and down. If I would be sitting on these assets, and I got all of these swings in my own pension money, I would be quite scared. What happens to it? So I really want also others to take on that risk for me as a service, yeah.

SINA THIEME: Yeah, I think that makes total sense on a life insurance side. I think there's more examples on the P&C side, where actually, with a few quite simple mitigation techniques, you reduce your risk.

FRANK SCHEPERS: Absolutely. I think with all of the risks, it's a bit like we should put protection, some like, mitigation, make sure the risks are not coming in. We should help really someone like the client who owns the risk in the first place. We should help them to manage the risk. And then what is remaining for that, we should have an answer as an industry.

SINA THIEME: Yeah, yeah, yeah, that makes sense. And I think, I mean, the other protection gap that exists is in form of stuff that is just currently not insured, where I'm talking about intangible assets, for example. So anything around intellectual property, brand value, that sort of stuff, it's funny that insurance is still very focused on hard assets, but there's actually a lot of value in the world that isn't covered in that sense.

FRANK SCHEPERS: Yeah, that principle, I'm not an expert on many things, yeah, so but I'm not a cyber expert. But I'm thinking also, well, you get cyber insurance, what is protecting for? It's protecting for OK, you've got a cyber attack, and then someone like your business is out of business for a week, business interruption, you can ensure that. Fine.

But what is really something like, you're talking about IP rights? So you're building a company, you develop something, and then somebody just takes it away. There is one thing where you say, well, you can sure probably somebody coming in and stealing that from you, or copying whatever. But the other risk is also just by the way, how things are developing, something like that, your knowledge becomes a bit like, well, common sense.

It's a bit like you thought you had a secret sauce, and then, yeah, a week after that somebody comes in, yeah, a bit like what we saw also with something like the AI. You got ChaptGPT, and you got the new stuff coming around which says, well, OK, whatever you did, I can do it in a week, and much quicker than you did, so yeah. But this goes into what is insurable, which is, I think a big topic. And I'm not sure we can go through the ground--

SINA THIEME: Cover that in two minutes?

FRANK SCHEPERS: No, no.

SINA THIEME: And I guess the other angle on technological advances are around distribution channels. So I think you travel the world, and probably come across quite interesting concepts of how to get people onto insurance by making it basically more accessible to people, and less of a myth. So I don't know if you have any examples of where you think this works well.

FRANK SCHEPERS: Yeah, that's a bit my Indian experience. So always, I mean I've been to India has always been like, well, that big impression for me is like, well, how can we make sure we ensure that other billion year underwriting by using a smartphone to make it accessible? Also, that doesn't solve then still affordability. That doesn't solve, OK, I can now reach all the people.

And in theory, they can access it, and they can buy it, but can they really afford it? Do we also have something like then the propositions for them to buy into that? So I think it's a bigger thing than just oh, we have a platform, and then it works. I mean, we've seen so many platforms, but then nobody's using them, because the driver is not there.

SINA THIEME: Yeah, yeah. And so I guess this is the insurance risk side on the balance sheet. On the other side, we've got capital that needs to be held against that risk. And I guess a big thing that WTW feels strongly about is, actually bringing that capital closer to risk. What does that mean for you? And what does that mean for our insurance, consulting, and technology business?

FRANK SCHEPERS: Yeah, I think, well, as I said before, that ability to have more information, price risk better, means also something like you can also manage the capital. You need to deploy less capital against the risk, the better you understand them.

And you may also find out that there are certain risks. I would say for every risk, there's a perfect owner for that. It's a bit like comes back to risk appetite. It's like when we look at the big continental European insurers, they all shied away from guaranteed business. Come back to the life side again, because they said, well, we don't want to have the big capital sitting against to it.

And then the question is, OK, do you give that back also policyholders, somebody don't do it? Or do you carve out-- we see some recent transactions also in Germany also, where you got an old traditional insurers also getting their way back into these kinds of businesses again, backing up the capital, and also then partnering? I think that also goes into we see ecosystem, we talk about ecosystems, and we come back to that probably in a bit like, how do different suppliers of technology consulting play together?

The other one is also, how different-- some private equity, traditional insurers, and how does that work together? I mean, you're somewhere like I say, Mrs. ILS for us. You worked in Bermuda on all of that. So what's your experience?

SINA THIEME: Yeah no, I think that's exactly what we're seeing, particularly on the CAT bond side at the moment. Q1 has been as busy as never before, which means more investors, so pension funds, family offices, hedge funds are interested in taking on insurance risk in some form, and having that as just the diversifier to other asset classes. And if you just look at how much assets are under management by exactly those players, and that provides a ridiculous amount of capacity to the insurance industry.

There are certain barriers, such as the fact that risk needs to be modelable. And obviously, certain types of particularly, secondary perils, like hail, or whatever, that's actually very hard to model. So some types of risks are just not naturally fitted it for this insurance risk asset class.

But actually, there's a lot of appetite that we're seeing, very exciting, investors also very interested in looking at non-property CAT risks. So trying to work out how you can transfer casualty risk, despite its long lost development, the challenge that currently exists. So then you're thinking about run-off players actually taking those portfolios on after a certain amount of time. So I think it's great to see how different parties interact, and actually, take risks at different layers, at different points in time. And that's probably what you were referring to when you said ecosystem as well. Like, it all--

FRANK SCHEPERS: Yes, absolutely.

SINA THIEME: Sort of plays together.

FRANK SCHEPERS: Absolutely. And you have to assume that all of that capital is smart capital. So again, it's also, so what can we as a company bring to them? So we can not only help insurers with that, we can also help them let's say, that capital, which is then private equity, whatever, to understand risk better, so what did they buy? And I think they are typically very clever.

SINA THIEME: Yeah. So I guess with all of these changes that we've been seeing, how are you setting up insurance, consulting, and technology as a business to respond to those changing client demands?

FRANK SCHEPERS: Yeah well, maybe going one step backwards, because well, we've got a very popular podcast, which you are hosting for countless times, but it's a bit like mine for those who are listening to it for the first time, insurance, consulting, and technology is what it says on the tin. So we have a business which provides a combination of technology solutions, and also then consulting advice, to combine that in order to help insurers almost exclusively, but with the exception we just talked about, some to run the business better.

So that means for us, is also when we think about it, saying, OK, if we think about, well, how can we improve what we bring to our clients, we have to think about how can we give better advice, and how can we improve our technology. And that is quite a long, long way away from where we started this company. So I'm in that company for almost 31 years now. Glad we're not on video today, just on audio.

And when I started off, it was also a bit like, we also have been a traditional actuarial consulting business. So this is what we did, very traditional. And if I see how much we have changed over recent years, probably the last decade, and we're accelerating that, is a bit like going a lot more into what is technology we're offering, because we say, well, that model where we just say, well, we got clever, people doing clever stuff, I think that's the business model where you can have clever ideas.

But if you can also then encapsulate them in technology, so make them really available to many players in the market, leverage that, that's the big thing. And I think that is really where we're focusing on trying to get, how can we improve our technology in order, one, some would like to equip our consultants, then to help their clients to make business better?

SINA THIEME: Yeah, and I think you quite often also say, let's focus on understanding the problem first, and what the solution is, and technology is almost always the answer. But basically, knowing what value you would be getting, what problem you're trying to solve with the software.

FRANK SCHEPERS: Yeah, absolutely. And going back to data ingestion, is a bit like what we are bringing to the table is, I would say, almost, often almost, yeah, so one of those, is a part of the solution to it. It's a bit like we going in, we can help, underwriting workbench, make clever decisions. And in that workbench, you have a pricing built in, and you got the capital model built in.

This is all fine, but that doesn't work unless you got data ingestion, and data strategy at the start. And that doesn't work if you don't then report it, and you get the right actions trigger to it, that doesn't work if you don't have the right management structure to put that into play. So this is also why, and maybe that's a bit of marketing in between, is a bit like when we look at our pricing software, this started really off as something very actuarial, the kernel, how do I do a GLM pricing for a risk, a mathematical model, same I did in university 35 years ago. A bit like, yeah, you can look at that, fine.

And then we went one step further to say, OK, you got elasticity curves and stuff, like, if you change your price, how will the market react? That's the next step. We did that 20 years ago.

Then we went into, OK, now we can also deploy that. That's the rate of life thing. It's a bit like it's great that your clever pricing, if you don't bring it to the market quickly enough, it's not good. And then the next thing, and now, I'm talking about India, and I was in Tokyo a month ago-- oh, that was great as well-- and we had a client meeting. And my expectations, I don't have to apologize for that, because I mean, I'm a German guy. I went to Japan, I think. Oh, yes. I mean, we have some friendly meetings, and there are not a lot of topics discussed, and all of that. I was so wrong.

It's a bit like we went into that and they say, well yeah, actually, well, we also, we got some subsidiaries who work in these countries. And in that country, we are proud. We always 5% five percentage points better than the market. And I say, well, how can you have a systematic sample like advantage over the market by 5 percentage points?

And they say, yeah, one is, we are better to sample analyze the risk, price the risk. We know the market. And he said, and then, the magic thing is then also, if we see something happen in the market, we can react to it, react quickly.

And I was thinking, oh my God, that could be the perfect salesperson for us, because that is really the latest thing we've done that, for the radar stuff like, analysis deployment, but then also the monitoring, has the world changed? What have we seen? A bit like something like there was I think, some years ago in the UK, say something like, I think BMWs got stolen, something like more often than other cars.

And then the question is, OK, how quick are you to react in the market? And I think that's really something like the whole thing. And I think this is really where we investing in to say, it's not only about mathematics, it's not only about deployment, but also linking that to the management actions.

SINA THIEME: Yeah, and so that's also pretty impressive if you think about standard reporting cycles here, you would tend to only pick stuff up like this the half a year later, once you've actually looked at your semiannual dashboards or whatever. So it's great that there seems to be a very frequent monitoring system, in addition to actually knowing what to do once you've identified a problem.

FRANK SCHEPERS: Yeah, but I think it's not commonly used. I mean, also, at the insurtech conference, I mean, there was also a very prestigious company reporting what they're doing, and the platform, and everything, and then say, oh, and our pricing models get updating every three months. And I was thinking, every three months? I was thinking, oh, they can use our software for that.

It's like, yeah, it's something like more frequent, but also depends on the market, of course. Something like, if you go to UK automotive market, yeah, highly sophisticated, extremely efficient, some like aggregator platforms around that, you need to be able to react very quickly. And then we talked earlier about the other risk, where you say at the moment, we don't really how to trade these risks, and if at all. I think there, this is less of a thing. So you also got some of that maturity curve probably, also by risk you have to go through.

SINA THIEME: Yeah, and so that agility that you're talking about, I guess, we need that within our own teams as well. So how are you ensuring there is enough agility, enough room for innovation within our business?

FRANK SCHEPERS: Oh yeah, so you speak now, maybe also again, as context, I said, we are in our line of business, about 1,700 people, of which probably 1,000 are actuaries. And actuaries are typically not those who are say, known for being very active, proactive, getting a new ideas. Well, I think we can be proud to say that the actuaries that we have, of course, are those who are much, much quicker in their thinking and the deployment of that.

But still, there is a bit like that legacy where you say, but we have done that always like that. How we can break that? For us, for example, one of the big things which also, I think sets us apart from other competitors in this space, is a bit like we are running a global business. So when I started off as a global leader, one of my big things was to say, I don't want us to have Americas region, European region, Asian region. They all run their business. And then at the end of the year, we sum up all the numbers, and then we get the results.

I said no, no, no, I want to-- we are also working for really some of the biggest insurers globally. And I want to make sure they get the best service, and they get the best people, wherever they are. So if we get an opportunity somewhere like in Asia, we need to make sure something like that, we get the best people for that problem working on that. That's a bit like, this is overcoming things like where some companies are really, they got local P&Ls, and they got local structures, and all of that, we say, pff, well, I'm not interested in that, yeah?

It's a bit like, at the end of the day, we are one business, and we say something like, if you get one of us, you get all of us. This is really what we aspire to. And I think it also, I can say, it has not been easy, some now three years in a row.

And it's like, in the first year, I said, we want to do that, people would say, yeah, yeah, fine. Second year, I said, I want to do that. And they say, we're doing some of it. And I think this year, I think was really, really taking off. So I'm really, really proud of that, yeah.

SINA THIEME: Yeah, and that's definitely something that has kept me for this long at WTW, because it's great to have this global network. And so one example, for example, is, I'm working on a German CAT bond. They are actually taking on risk from a Japanese insurer, the special purpose vehicle for the Japanese insurer, who also issued a CAT bond, sits in Singapore.

And I'm obviously in the UK, so we've got Germany, Singapore, Japan, and the UK being involved. And I'm very easily able to pull together a team of exactly those regions. And we work on the same project with no issues. And that's pretty-- I mean, for regions, for small project is quite an extreme, but that's how I grew up. And that's how we train our people to be, which is pretty amazing.

FRANK SCHEPERS: Yeah, yeah. No, I think that it is very important. I mean, at the moment, we see many factors leading towards, oh yes, the globalization goes back again. I don't think it will. I think we've got a globally connected world. And I really want to live in that, yeah.

SINA THIEME: Great. On that note, Frank, thank you very much for joining me.

FRANK SCHEPERS: You're welcome.

SINA THIEME: And if you're interested in other episodes of (Re)thinking Insurance, then please go to our website and have a listen.

FRANK SCHEPERS: Thank you very much.

SPEAKER: Thank you for joining us for this WTW podcast featuring the latest perspectives on the intersection of people, capital, and risk. For more information, visit the Insights section of wtwco.com. This podcast is for general discussion and/or information only. It is not intended to be relied upon, and action based on, or in connection with anything contained herein, should not be taken without first obtaining specific advice from a suitably qualified professional.