The anatomy of risk will determine our insurance future

When we look to the future of insurance, we need to consider the overall health of industry products and the wider insurance ecosystem.

By its very definition, health is the absence of injury or illness. In the context of insurance, this cannot be achieved by relying on traditional models of indemnification but rather through the elixir of risk mitigation and management.

Science tells us that white blood cells make up only about 1 per cent of our blood's composition but the role they play in our immune system is critical to our health and wellbeing.

White blood cells and insurance

White blood cells protect the body against illness and disease. Their very behaviour epitomises vigilance. They identify potential harm, they swarm where there is loss or damage, and they support our recovery and return to health.

Similarly, when an event occurs that triggers a loss against an insurance policy, the ecosystem or anatomy of a claim springs into action. Harm is identified, loss is determined, and recovery or repair ensues.

The case manager sits at the heart of the ecosystem as a representative of the insurer and as an advocate for the insured, as part of team of white blood cells coming together to right a wrong and build a community of resilience, and where possible, immunity against further damage or loss.

Prevention better than cure

What is in common is the reaction to an event. Historically speaking, insurance has been focused on risk indemnification — protection and compensation for harm or loss.

As the saying goes, prevention is better than cure. In insurance terms, risk mitigation and management are better than risk indemnification on its own.

The frequency, severity, duration and cost of claims continue to increase across most, if not all lines of business in the Property and Casualty (P&C) market.

Given supply chain delays, the cost of replacement and repair, a hardening reinsurance market, the unprecedented rise in natural catastrophe events among other factors, it’s time for the insurance sector’s immune system to kick into gear.

We need to provide our white blood cells with the optimal environment to perform at their best.

Healthy risk mitigation 

So, what does it mean to shift your focus to risk mitigation?

For a start, this is an approach that needs to cut across the dimensions of culture, process, data, systems and suppliers.

With regard to culture, a risk mitigation mindet is about being driven by curiosity where your people are genuinely interested in what is going on with the insured rather than waiting for renewal sor an event to occur before engaging.

From a process perspective, this requires a proactive dialogue between the insurance company and the insured.

Where data is concerned, the Internet of Things has provided an abundance of opportunity for insurers to better listen to and hear risk.

Just some of these include telematics in automobiles, sensors in the home that detect water infiltration, wearable devices and clothing that measure a person’s health and physical exertion.

Connecting policy and claims

Lastly from a systems perspective, a risk mitigation mindset means establishing a true connection between policy and claims that goes well beyond how the risk was disclosed and rated at policy inception and how the cost of claims impacts the future price of insurance.

It means using the data that is available to understand the risk before it happens and how best to influence the outcome when the loss cannot be avoided. It means listening to the risk and nudging it towards a reduced impact and a better outcome for all involved.

All this, along with establishing an integrated approach to service providers can help sound the alarm early, allowing the continuous tragectory of continuous improvement to risk management that businesses are looking for. 

With a focus on immunity as opposed to active treatment, the sector can move towards a true partnership between risk takers and insurers, while dealing with the volatility we have all become so used to.