er the significant controversy associated
with the use of credit and insurance demand information in the pricing process.
Regulators have generally taken a conservative view in limiting the way customer
behavior information can influence the
price charged for insurance products.
While insurers that remain blind to the
relevance of this data in their marketing
and pricing structures subject themselves
to significant competitive disadvantages,
they have to contend with regulatory limitations. The key is to educate regulators
in how relevant information produces
prices that are fair and promote a healthy
Meanwhile, insurance customers
are dealing with quickly evolving risks
and expect insurers to proactively help
mitigate them. While in some cases
traditional insurance products may be
slightly modified to accommodate new
risks, other situations call for entirely
new ways to define, underwrite and price
risks. In such situations, new competitors and disrupters can often introduce
creative solutions because they are less
invested in traditional methods of handling emerging risk.
Often, sophisticated customers can
manage the risk transfer and financing issues on their own, but want experts to deliver detailed risk information for guiding
their decisions. This environment clearly
favors providers who have embraced the
key principles of innovation.
Lastly, perhaps the most significant
challenge facing insurers seeking to innovate is adopting an urgency mindset.
Insurance contracts and regulations have
been around for a long time. If the trends
noted above are addressed without a
high level of urgency, it is probable that
new market participants and insurers
that have embraced innovation will experience increases in the risk economy’s
Capitalizing on insurer expertise
While insurers face significant challeng-
es, they also are well positioned to take
advantage of these new opportunities.
Insurers have extensive experience in
analyzing risk, creating a market to trans-
fer risk, and servicing various aspects of
the risk transfer process, including claims
handling and facilitating the feedback
loop on risk mitigation.
Insurers understand risk because it’s
their business. They house a blend of
risk professionals, including underwrit-
ers, actuaries and claims experts, who
work together to evaluate exposures and
design coverage terms and conditions
under which risk can be transferred,
or provide advice on other alternatives
to manage the risk. Each professional
brings an important perspective in deal-
ing with both the quantitative and quali-
tative aspects of risk.
With years of experience solving risk
transfer problems across property and
casualty lines, many insights from traditional insurance can be extended to
tackle new challenges. For example, terrorism products were created in 2001
ALL TYPES OF PROPERTY LOSSES SINCE 1962
RESIDENTIAL, COMMERCIAL AND CATASTROPHIC CLAIMS