The Possibilities Are Just Extraordinary
It has always been about the numbers.
The modern insurance industry came about by virtue of the adoption of applied probability and statistics in the 17th and 18th centuries. Some would say it hasn’t advanced much since. While that is a bit overstated, you might be forgiven for thinking so after looking at the large-commercial property marketplace.
The commercial property insurance marketplace is a complex web of maddening inefficiency and scattered packets of data leading to insurance products and pricing that can seem insufficiently correlated to the risks presented.
The core parties to these insurance contracts – the owners and the risk-bearers – both suffer in this environment. And the broking community ties itself in knots trying to make sense of it for each party. Opaque processes inevitably lead to distrust in the owner community, compounded by the insurers adding cost as a necessary solution to the resulting imprecision.
This is a losing formula, most especially for the insureds’ risk managers who might be thinking...What can I do to lower our risks? Do I have the right coverage? How do I know it is fairly priced? How can I prove it to others?
Now more than ever, it’s time to modernize and simplify these dynamics. To do so, requires a logical three-part journey.
The first stage of the journey is to create a platform that will make it simpler, clearer and more compelling to convey the critical information needed by underwriters, and to provide for the exchange of such information at a speed that reflects the reality of the businesses they serve. This alone will lower the cost of the insurance buying process for all parties.
Next, as platform usage grows, the second stage becomes possible. The application of analytics to the resulting large baskets of anonymized data will yield insights for property and risk managers on the best practices for loss prevention and loss mitigation and will in turn allow for insurers to more precisely differentiate and price risks. Both of these efforts likely will lower costs across the system.
These first two stages will be sufficiently valuable to justify everything involved. And they also set the stage for what is almost certain to come next.
In the third stage of the journey, the platform and resulting insights should make possible a reinvention of the products themselves to become more certain, more useful, and yet again more efficient. And this, in turn, can lead to the attraction of additional pools of capital to serve the risks of commercial property owners, further lowering costs.
Importantly, this three-part journey has been undertaken before. The pioneering leadership of catastrophe modelers in the field made possible the fact that as much as 15% of the capital that backs reinsurance contracts comes from sources and products new to the marketplace. This is arguably the most transformational change to insurance in the past 50 years.
It’s now time to focus this expertise and experience on the commercial property marketplace. The possibilities are just as extraordinary.
Having previously led both a national and international insurer, people ask me why I chose to be involved with a start-up like Archipelago.
Now you know.
