Towards A Better Future - The Way forward for the Insurance Industry
Technology has continued to make the life of man easier and more comfortable. Over the last one hundred years, the pace of technological advancement has been phenomenal and unprecedented. Advancement in technology in the fields of, the printing press, the telephone, and the Internet, have lessened physical barriers to communication and allowed humans to interact freely on a global scale.
Technology has also lead to massive changes in the transportation, manufacturing, engineering, business sectors of the economies of the world.
Advancement in technology in the field of medicine and health care have dramatically increased chances of surviving illness and disease, and enhanced our ability to live following organ failure or the loss of a limb.
As the World becomes more interconnected and technologically advanced, threats and risks are growing in equal measures i.e. exponentially.
For Insurers to survive with these fast changes, they must be able to cope with these developments, and should not be left behind.
Insurance plays a key role in supporting economic growth and development, providing medical and other health benefits, providing adequate retirement incomes in the face of global ageing, and finally driving improvements in risk management, related to the development of new technology. This it does by providing Insurance protection, a feat it achieves by collecting premiums from a large number of persons, that is the Insuring public and the amounts collected are used to pay claims to those who suffer specified losses in the group.
Primarily, Insurance provides financial security to policy holders by spreading the loss of the few over the fortunate many, so that the loss is borne lightly by the many, and consequently does not crush the few. Insurance thus exist for two main reasons; to help prevent losses from happening in the first place and to alleviate the financial consequences if disaster does strike.
Secondly, Insurance galvanizes funds for savings and investment, which would otherwise be tied up, removes fear and establishes confidence for the investors.
Inevitably, Insurers have been involved in these technological developments over the years as it has been able to provide the security required by the innovators and developers to put their ideas into practice. Without this security, these ideas might never have seen the light of day.
Going into the future, technology will be a serious balancing act for the Insurers. On the one hand, continuing development in technology will help spur economic activity, improve well being and support longevity. On the other hand, there is likely to be risks attached to new technology, which will need careful assessment and management.
Consequently with new technological developments there come risks and opportunities and the greatest risk for the insurers are not to invest in technology in the first place.
The Insurance industry is faced with challenges in the form of new and emerging risks. Some of the new risks likely to face the Insurers in the foreseeable future are Global warming leading to more catastrophic weather events, cyber attacks, water crisis, over population and global ageing due to better health care facilities, income inequality, energy crisis, and violent conflicts, terrorist’s attacks, pandemic diseases, among others.
Climate change is expected to cause additional risks to underwriters. With the climate change, temperatures would continue to increase and rainfall patterns are likely to change, with increase leading to more seasons of heavy rainfall, windstorms and arise in sea levels. This would lead to more extreme weather conditions leading to flooding and heat waves. For the Insurance Industry, the most testing element of climate change is the increased volatility in weather, and its unpredictable nature. There would be an increase in flood losses, wind losses, outcomes that will hit the insurers very hard.
Water crisis is another cause of concern for the Insurers.
A reduction in water supply is one of the biggest future threats facing business across the globe. Interruptions in water supply could see companies cutting their productions, increased prices, and price volatility due to usage restrictions. Here at home, whenever dams dry up, the cost of electricity automatically goes up and the food prices follow suit.
The challenge facing business is therefore numerous when it comes to water. They have to secure the supplies they currently have, evolve their processes to use less water in the future and make their organizations more resilient to the growing threat of scarcity and supply interruption.
The Insurance Industry, with their expertise in Risk Management, is the obvious place to look for answers to these problems.
Cyber attacks (risks) come in many guises. Cyber risks may include theft of data, cyber outages (e.g. from virus attack,) and unauthorized access to e-mail accounts or databases, to media risks such as copyright infringements. The reasons behind attacks on the systems and data resources of the companies, institutions and governments are many and varied and this is because information has become “hot” property. Moreover, processes in our networked world are becoming even more complex, required response times are even shorter and compliance requirements increasingly stringent.
Given the variety of cyber risks involved, the measures used to minimize risks also differ greatly. Security risks for example can best be prevented by using the latest technical installations such as firewalls or virus scanners. Companies have made great progress in recent years, with security systems now being updated daily.
Never the less, fool proof security is never possible and companies turn to insurers to cover the residual risk, especially in cases where risks are less frequent, but of high intensity.
IT system failures can today cost millions of Dollars. This makes the cyber risks a major business hazard. If they are underestimated, they may soon jeopardize a company’s entire economic existence. For this reason, it is vital that risk management systems cover the entire spectrum of IT.
For Insurers to remain relevant and continue to meet the security requirements for their clients, they must be more professional in their approach to business, be more innovative, must engage consumers through communication, and embrace risk management techniques.
Under the heading of professionalism, the Insurers will need to be increasingly enhance the skills of its personnel, and regularly asses where the gaps in the knowledge to be able to adapt to a complex and changing business environment. Commitment to the profession will therefore be a vital part of this process. This will entail that practitioners and firms commit to lifelong learning and a high standard of ethical behavior, both of which help engender greater levels of public trust and confidence.
Innovation is a must for the Industry to be able to cope with the ever changing technology. The Insurance Industry has always been innovative –finding ways and means to underwrite all sorts of risks, however big or small. Continuing innovation will be critical to the continuing success of the industry. Finding innovative ways to utilize new technology will be part of this effort-helping to improve the efficiency and effectiveness of insurer’s core functions.
Communication is a third factor that insurers must in calculate in its endeavor to cope and survive in the dynamic world. The industry must be able to communicate its broader role and in simple terms to the general public. This does not just mean providing information about the latest products and services, but also finding ways to inform and educate about the wider role of the industry, such as its capacity to foster economic growth. This will help to provide the public with a greater appreciation of the role and importance of insurance.
Risk Management has become one of the core functions of Insurers. Risk specialist must continue to scan the risk horizon for new risks and threats in addition to undertaking robust modeling to build a holistic view of the risk landscape. The trends of future risks require that the industry risk managers work jointly with the experts from other disciplines. This is because the risks are increasingly becoming more numerous, broad and highly complicated.
Governments and policy makers plays a pivotal role in determining the world’s direction. Insurers should take a leading role in influencing the policy makers and governments as they influence the direction to be taken. Consequently public opinion which can constrain or compel political action will be critical in determining local, national and International response to different types of risks. The decisions made by governments and policy makers in responding to threats we face will be critical in determining the world’s future; crucially in many policy areas, such as adaptation to climate change, emerging risks etc. The industry has unique expertise in understanding seemingly opaque risks as well as access to the latest and most reliable data and modeling techniques, all of which should be invaluable to governments that are developing policy.
Embracing technology will be important for the industry to improve the way it underwrites its risks, process claims, markets its products to consumers and identifies risks that threatens its own solvency. And by acquiring expertise in new technologies and growing links to the latest research and developments, the Industry will also be well placed to raise awareness amongst the wider general public. This could be through appropriate pricing of risks or through collaborative efforts with other industries, sectors and government bodies.
The insurance Industry has been known for its innovativeness and creativity. The industry’s past is littered with creativity and innovation, which has allowed it to continue providing a service that, is central to the functioning of healthy economies globally. It is crucial that the industry continues to be creative because there are more serious risks to face in the future and a sound and stable insurance Industry has a key part to play in building a secure and prosperous future.