The Intelligent Quarterly from the publishers of The Insurance Insider

Summer 2018

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Paul Latarche

InsurTech is set to redefine the way the insurance industry operates and the sector has seen hundreds of millions of pounds in investment over recent years.

Fears that these disruptors will change the way the market operates have blighted the thinking of the traditional markets. It is clear that the market is fearful of where it finds itself and believes it is in a precarious position.

It was with great interest that I attended The Insurance Insider's InsiderTech event in New York in December, as a panel member for the discussion on the relationship between InsurTech and the traditional (re)insurance model.

The conversations at the event were interesting and enlightening, and what struck me was that it was attended by many InsurTech firms which, while they have received tens of millions of dollars of investment in order to create a new and innovative front end, have little on the back end to support this high-tech facade.

I believe that in the year ahead InsurTech start-ups will need to move from conception to reality - and towards proving the premise on which they attracted their investment.

However, the market needs to understand the fundamentals of the changes that have to happen in the industry to drive relevance and, as we have seen in recent weeks, meet the demands of the regulators.

Connecting capital with risk
For me, the issue for the market is the need to drive greater connection between the capital and the risk. We need to get the capital to where it can most effectively deliver its value, and that brings with it the need for the market to speed up and streamline its distribution channels.

This is not to say that we are heading towards an era of disintermediation, but intermediaries are also facing a challenge that will put the way they operate under the regulatory microscope.

In the UK the Financial Conduct Authority (FCA) has said it will launch an enquiry into the wholesale insurance market. It noted that the London insurance market is one of the world's leading centres for large-scale, complex commercial and specialist risks, controlling more than £68bn in gross written premium.

The wholesale sector has also undergone what the regulator believes are "significant changes" in recent years, with brokers developing new services and business practices.

The FCA said it wants to explore how competition is currently working and whether it could work better.

Christopher Woolard, the FCA's executive director of Strategy and Competition, said that: "Given the size of the wholesale insurance sector and the type of large-scale risks it covers, the way it functions can have a wide-ranging impact on the broader economy. If businesses cannot get appropriate cover or pay more for services than they should, it can impact on their ability to operate and grow."

He added: "Brokers play an important part in the wholesale insurance sector, ensuring clients get appropriate coverage at good value. However, following significant changes in the sector, we are looking at the dynamics to ensure competition is working well."

Cutting costs
The section which will obviously concern Moore Stephens' wholesale broking clients is the issue of whether customers are paying more than they should.

The moves to modernise the London market have been predicated on the fact that it recognises that the frictional costs of doing business in the City are high.

It is clear the FCA will be asking wholesale brokers what value they bring to the transaction between capital provider and client and how they justify the costs of that value.

Clearly, technology will play a part in the reducing the market's costs, and at Moore Stephens in the past year our RuleBook system and RuleBook hub have continued to gather traction, with 25 percent of the London market now utilising the system and $10bn in premiums passing through it.

It delivers technology throughout the transactional process, speeding the responsiveness of underwriters and their ability to communicate new policy information or changes to existing policies quickly across its distribution channels. Fundamentally, it is designed to bring together insurers' intellectual and financial capital and allow them to be accessed in ever more efficient way, including these new customer experiences.

It highlights the fact that the impact of InsurTech has yet to be fully recognised, and while the potential benefits that many of the new start-ups are saying they will deliver is huge, the proof of much of this will be when these firms roll out the systems they have been working so hard to create.

Continued evolution
The ability to deliver attractive and innovative front end systems which will face the customer is one thing, but we have to ensure that the systems that are placed behind that front end are able to fulfil their part of the process with the same speed and innovative approach.

The market is on the cusp of significant change both in how it communicates with its customers and how the business is operated.

It is highly unlikely that insurance will see some sort of Uber "Big Bang" type of moment, when rapid and fundamental change occurs.

Instead, we will see a continued evolution from the traditional insurance approach to a new model that will have technology and the "Internet of Things" at its heart.

Many of the current headlines revolve around InsurTech launches for personal lines business, but the specialty and large commercial markets are driving change - albeit outside of the blaze of publicity that is part and parcel of building a brand recognisable to the wider public.

At Moore Stephens we view the year ahead as an exciting time for the industry and one in which the RuleBook system and RuleBook hub will play an increasing role in speeding response and reducing transactional costs.

Paul Latarche is head of Insurance for Moore Stephens.

This article was published as part of issue Winter 2017

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