Challenges of Self-Insurance: Digital Disruption & Transparency

Challenges of Self-Insurance: Digital Disruption & Transparency

The digital disruption wave is sweeping across all industries in ways previously never imagined. With relentless rise of new technologies such as artificial intelligence, machine learning and internet of things (IoT), it dictates the growth of businesses as well as its ability to give value to its customers or clients. Simply put, business as usual is a thing of the past. Digital disruptions have radically driven change in operations, workplace culture as well as consumer behaviour.

So much so that at the Gartner Symposium/ITxpo in Gold Coast, Australia a few years ago, Apple co-founder Steve Wozniak encouraged companies to look further ahead by appointing a Chief Disruption Officer “to look out for what is coming, for what might disrupt your own business.” Talking about appointments, the job market too is being heavily reshaped by automation, with experts recommending reskilling employees to prepare them for the future.

The insurance industry is not exempt from disruptions. A report by McKinsey released in March 2017, titled Digital disruption in insurance: Cutting through the noise, states that while the traditional insurance business model has proved to be remarkably resilient, it is beginning to feel the digital effect. However, the report also finds that insurance companies can flourish in the digital age, if they move swiftly and decisively as there are opportunities abound.

McKinsey stresses that insurance companies that embrace digital disruptions are likely to enjoy the ultimate prize of satisfied customers, lower costs and higher growth, because the goal will be to meet customers’ expectations and preferences, which has been dramatically altered by digital technology such as 24-hour access and quick delivery, clear information about product features and pricing, and innovative services designed for the digital age.

Which brings us to disruptions in captive insurance. Interestingly, an article in described captive insurers as a new business model that disrupted the traditional commercial insurance markets, some 40 years ago. The reality today is, the disruptors are being disrupted. Hence, it’s imperative for the captive market to quickly adapt to current trends with technology expected to pose a host of new challenges for risk managers in the years to come.

An article published by Labuan IBFC in June quoted the Managing Director of Cutts-Watson Consulting Limited as saying “In a rapidly evolving industry such as technology, traditional insurance struggles to meet the changing demands of customers and entities. Captives technology provides a more flexible, nimble and innovative solution. Captive provides the ideal vehicle to ‘incubate’ these risks until sufficient loss history is available to enable the commercial market to sensibly compete.”

In the Challenges Of Self-Insurance: Digital Disruption And Transparency panel discussion at the ACC 2018, the most critical recommendation was the use of InsurWave. the world’s first blockchain-powered platform for marine insurance, jointly developed by EY and software company Guardtime. InsurWave leverages on blockchain and distributed ledger technologies Microsoft Azure infrastructure and ACORD data standards.

It’s designed to support more than half a million automated ledger transactions and help manage risk for more than 1,000 commercial vessels in the first year. Among the crucial benefits of InsurWave that were highlighted includes the rise of new data sources, additional data points, providing more insights and more accurate risk assessments. There are also real or near real time data for locating and tracking moving assets.

The technology also aims to bridge the distance between risk and capital, allowing for better quantification of risks which potentially delivers better pricing. Upon the introduction of Insurwave, Chief Information Officer of XL Catlin, Martin Henley, said, “through the use of IoT and smart contracts, policies will be updated automatically to reflect the risks covered. This combination of technologies will help improve efficiency in claims assessment and payment.”

The blockchain platform is also said to address the need for exchanging transparent and trustworthy data in real time across the value chain while offering the simplicity of a single version of the truth across multiple parties. While there were examples of blockchain prototypes cited for existing global captive insurance programmes and multinational smart contract -based insurance policies, the conclusion was on the potential of blockchain beyond marine.

The panellists urged the development of blockchain beyond the sea, as it has the potential to deliver state-of-the-art solutions for other insurance lines. The use of Insurwave was advocated, as a catalyst for continuous learning and development of new ways to deal with digital disruptions – expected to get more intense in time – and provide captives with more powerful and transparent means of tracking and distributing information.