There is no longer an argument to be had over whether marine insurance should adopt full digitalisation, according to Andrew Yeoman, chief executive at specialist insurance technology company Concirrus.
For Yeoman, the completion of the first round of 2020 policy renewals under lockdown in one of the main insurance hubs of the world — most notably, Lloyd’s of London — proves the market is already working effectively based entirely on digital processes.
Yeoman, speaking at a webinar arranged by the International Union of Marine Insurance (IUMI), said there is now no turning back.
Noting that, historically, change in the insurance market tends to be driven by disasters, he said: “Covid-19 is probably the single most important driver of digitalisation in the marine market.
“The first-quarter renewal was completed without interruption, no physical meetings, no access to offices and with no one getting on a plane."
As the head of an insurtech company, Yeoman’s comments might be expected. But they were also recently backed by Brit Insurance chief executive Matthew Wilson, who was quoted as saying that the temporary closure of the Lloyd’s market marked the insurance industry's transition into full digitalisation.
Key to profitability
Industry figures suggest there has been a 40% increase in the use of Lloyd’s electronic placing platform, known as PPL, even though the system has been often criticised for its poor usability.
It is estimated around 70% of Lloyd’s 2020 first-quarter renewal business was conducted electronically.
Looking at the Lloyd’s loss ratio, I think that is a good reason to change
Andrew Yeoman, chief executive of Concirrus
Patrizia Kern, the head of marine at Swiss Re Corporate Solutions, is also a strong supporter of digitalisation in the marine insurance market.
Speaking at the IUMI webinar, she said technology could hold the key to making the marine insurance market profitable again — by reducing expenses and brokerage, and by promoting more accurate underwriting.
“Why do we need to move to digital operations? Because acquisition costs can be as much as 42% of price and this is not sustainable,” she said. “At SwissRe, we have no paperwork and no documentation. All this data is a huge opportunity to analyse risk in a different way.”
Yeoman agreed that digitalisation might be the best way to put marine insurance back on a profitable footing.
“Looking at the Lloyd’s loss ratio, I think that is a good reason to change,” he said.
Out with the old?
Some insurance pundits are even questioning whether it is worth reopening the doors to the Lloyd’s market once the pandemic has passed.
The traditional practice of brokers pacing the trading floor of Lloyd’s iconic building on Lime Street, and negotiating with underwriters at their box, now seems antiquated.
But Yeoman warned that, although digitalisation is bringing a change, it would be a mistake to see technology as a replacement for the underwriter.
He pointed out that digital processes can carry out time-consuming work, such as portfolio management in an instant. That would free up the underwriter to explore new ways of bringing added value to the business.
Kern said Swiss Re is using technology and data to augment, rather than replace, human intelligence in the workplace.
Technological support
“Technology gives more support to the underwriter to make the right decision,” she said.
Some have pointed to limitations in marine-insurance digitalisation, claiming it cannot help in ship surveys, damage assessment and accident investigation.
Yeoman said digital technology is already being used in data and image transfer in communication between parties in such survey work.
He also pointed out that digitalisation has developed into the in-service monitoring of ship machinery.
That could help insurers check that machinery is being operated within agreed technical parameters and in real time. They could then pay out on claims instantly after confirming the machinery is operated within the terms of cover.
Pricing dilemma
One digitalisation problem cited by brokers is that if underwriters work on the same data, using similar risk-assessment tools, then there is the danger that they might all arrive at the same price for risk.
Not only would that make it more difficult for underwriters to compete, but it could also start to attract the attention of the competition authorities.
But Kern said the differing cost base of insurers would mean that pricing would never be uniform.
“I do not see the market ending up with the same price, but I do see less fluctuation," she said. "But all companies have different operational and acquisition costs, so we won’t all end up with the same price.”
Yeoman also said all underwriters see risk differently, so they will price it differently.
“All underwriters have different risk appetite, so they won’t end up with the same price,” he said.
