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2020 TRENDS

Ben Davis, Insurance Lead of Emerging Technologies at Digital Risks

 

eSports – specific insurance risks:

The video games industry will be valued at $305bn by 2025 according to GlobalData. eSports, the online gaming element of this sector, will be worth $1.8bn by 2022 alone.

Traditional insurance players however have, as of yet, failed to take the eSports industry seriously and are less likely to do so in the near future. They’ll also likely struggle to adapt quickly enough to be able to protect against the emerging risks of a new sector so quickly.

Insurtechs however, that are more agile, and can better relate to the eSports audience, due to regularly engaging in the online channel,  will be well placed to protect players, businesses and manufacturers in this industry.

2020 will be a tipping point for the industry as awareness of the sector, and larger investment, continues to flood in. And as the sector continues to grow and mature, there are an increasing number of risks which stakeholders will need to insure themselves against.

The players: eSports players are effectively employees of the gaming company that sponsors them. However, unlike the ‘traditional’ employee, they also often live, travel and work together 24/7 in ‘team houses’. They also require greater protection over their physical body as this is what they use to play games. If one or more players gets sick or injured pre-tournament, sponsors could be seriously out of pocket. Cover of property and physical well-being from damage is therefore crucial.

The team: eSports teams act as the face of their business. Their merchandise and in-game skins are an extension of the brand. Protecting intellectual property is therefore crucial to ensure their ’identity’ both in the virtual and real world can’t be ripped off.

The Tech: As gaming technology such as wearables and headsets become increasingly commonplace, manufacturers will need the right cover in the case of malfunctions. Product recall as well as cover for the products themselves are an exposure that will continue to grow as esports popularity continues to rise. The eSports teams themselves, affiliated with this tech, will also need to be insured if they put their name on a product which comes with faults that leads to damage or injury.

 

The biggest risks of 2020:

  1. Natural Disasters – A bold prediction 

If there’s one emerging risk that will dominate 2020, it will be the development of natural disasters and the consequential damage they impose on livelihoods across the globe. Most people think that the physical and virtual worlds are separate, but in reality the virtual world is very much affected by the natural disasters of the physical world. Physical damage to technology firms can be a trigger for a cyber-based attack as their defences and resources may be compromised dealing with the physical emergency.

Calculating insurance for businesses against climate damage has largely been built on historical data. But we’re entering a new era of global heating and climate change; with extreme weather events leading to mass damage to businesses worldwide.

Historically the large insurance players have made their money through protecting property, however as climate change increases, and disasters become more commonplace, this will become an increasingly complicated (and loss-making) sector.

2020 could be the year in which the larger insurance players look to ‘balance the books’ to better protect themselves against more claims in this sector. This could mean they could either look to provide new products that are uncorrelated with property losses or reduce their exposure in this sector.

Businesses that do not respond quickly enough to the ‘greenification’ of everything will also be hit by social pressure to change potentially harmful business practices or investment. We are already seeing insurers pull out of businesses that are deemed to be harmful to the planet. 2020 will be important for companies to take a strong stand on climate change and show the world how they’re changing to address it or risk being ostracized for failing to act.

  1. Cybersecurity

2019 has been a bad year for cybercrime. Security specialists Symantec revealed earlier in the year that over 4 billion records had been breached, with nearly 4,000 separate incidents announced. 2020 is expected to see a continuation, or even an increase in the level of attacks, with Cybercrime Magazine predicting that by 2021 attacks will cost $6 trillion annually.

One of the main issues is that as the fraudster/hacker gets smarter, there are simply not enough trained cyber security professionals to protect every business. In a world of open APIs and shareable data, this means that one weak link in the chain can bring down an entire host of businesses.

Some of the big trends of 2020 will include an increase in ransomware attacks, with businesses happy to pay out rather than fight their way through. As well as the dominance of the ‘Deep Fake’, where scammers can create fake videos purporting to show high level members of staff requesting junior colleagues into giving up financial information/valuable documents.

Insurtechs like Digital Risks are well placed to provide cover against these emerging cyber risks, if there is evidence of clear social engineering.

  1. A 5G powered IoT

With 5G infrastructure projects well underway, 2020 is expected to be the year in which the technology becomes commercially viable. This greater level of connectivity means that IoT can meet its true potential, with a host of interconnected devices helping to power our cities and advance our day to day lives.

With this however comes a host of emerging risks and security concerns. Connected devices are a paradise for hackers who can access weaker technologies, such as a thermostat or smart-fridge to infect a wider network. We’re already seeing examples where devices such as printers have been hacked to siphon off the printer’s memory to access print jobs containing sensitive files, such as contracts, corporate data or patient information.

The IoT enables botnets which are comprised of thousands or millions of infected internet-connected devices to be used to deny access to a victim’s website. With the amount of IoT devices coming online, this means that botnets could become even more powerful and commonplace. For the insurance industry, it is important to protect our clients from denial of service attacks formed from botnets, but also protect our customer’s devices if they are used in a botnet. Digital Risks insures both.

Businesses will need to be sure that they have comprehensive cover that means their entire network is protected, and that any device installed in their network is verified beforehand. This can be as simple as remembering to change the manufacturer’s default password already installed on the device. Individuals looking to take devices into shared workspaces/offices will also need cover, in case it’s their device which starts a widespread data breach.

 

More about Digital Risks:

Digital Risks is an insurance provider for the digital age, with pay-monthly subscription cover, proprietary technology and customer experience that reflects the fast-changing needs of small and medium-sized businesses.

With an understanding of the evolving risks and threats facing SMEs, and partnerships with the UK’s best underwriters, Digital Risks uses cutting-edge technology and leverages multiple data points to deliver a personalised experience giving customers the exact protection they need, and the service they deserve.

Digital Risks was founded in 2015 and launched in late 2016 by two friends; Cameron Shearer, CEO, an accomplished marketer, entrepreneur and tech expert, and Ben Rose, chief underwriting officer and all-round insurance specialist. Since then, Digital Risks has been on a mission to reinvent the business insurance industry for the better, creating a competitive, flexible and trusted safety net enabling SME leaders and their business to thrive.

 

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ENTERPRISE BLOCKCHAIN: DRAGGING INSURANCE OUT OF THE DARK AGES

Ryan Rugg, Global Head of The Industry Business Unit at R3

 

The history of insurance traces back to the development of modern business and insuring against its risks; property, cargo, medical and death. Insurance helps mitigate losses, wary of the financial losses a capsized ship could cause, forward-thinking vessel owners established communal funds that could pay for damages to any individual’s ship within the group. While this basic concept holds strong to this day, insurance is now a multi-trillion dollar industry that impacts almost every other sector of business, from healthcare to capital markets and aviation.

Despite the insurance industry’s image of being a conservative sector, insurers have been consistently innovative in the property and perils they protect against, but the supporting technologies and infrastructure have remained antiquated and unfit for purpose. Operational inefficiency is the single biggest threat facing the insurance industry today, and insurers are now taking steps to tackle this challenge head-on with purpose-built enterprise blockchain technology.

 

Ryan Rugg

Inefficiency and fragmentation

Blockchain provides a solution to drive efficiency and security that would allow private data to be shared in a secure manner. Many policies are still sold over the phone rather than online, and the policies themselves are then processed on paper contracts, introducing huge potential for manual errors in claims and payments. This anachronistic infrastructure is even more surprising when you consider the complexity of the insurance ecosystem and the amount of parties involved in a transaction, including consumers, brokers, insurers, reinsurers and more.

The costs of this inefficiency and fragmentation are well documented. Inaccurate, disparate sources of data acquisition lead to long underwriting cycles and inaccurate risk profiling. Extensive manual intervention is required across the insurance value chain, ranging from contract placement to claims settlement. Archaic billing systems and complex billing processes lead to high reconciliation costs. Ambiguity in loss conditions, assessment procedures and claim settlement delays leads to increased litigation risk. It has been estimated that as much as 60% of customer premiums is consumed by these inefficiencies.[1]

In addition, increasingly stringent and dynamic regulatory requirements continue to impact areas such as renewals and claims assessment. Insurers often have a complete lack of visibility of their liabilities and obligations, and a lack of transparency across the entire business. In today’s regulatory climate, it is unsurprising that authorities are beginning to demand more from insurers.

Blockchain technology is not a panacea for all of these problems, but with the right architecture a platform can address and reduce inefficiencies.  There are also new revenue and growth opportunities in cutting-edge sectors such as cyber insurance that blockchain technology can help enable.

 

Tackling the blockchain privacy challenge

Blockchain offers insurance firms a new way to coordinate information between each other, by using a pre-agreed technology solution instead of relying on a third party’s bookkeeping. The technology enables disparate parties to connect via a shared platform environment. While this premise may appear simple at first glance, the insurance industry has specific requirements in relation to privacy and security that only certain blockchain platforms can fulfil.

For example, if a blockchain has the appropriate data privacy architecture in place, each insurance firm can maintain the same amount of control over their data as today, but with more flexibility. Unlike the traditional permission-less blockchain platforms – in which all data is shared with all parties – Corda shares information with those who have a “need to know,” ensuring the confidentiality of trades and agreements while also capturing the benefits of a shared distributed ledger infrastructure.

Blockchain platforms such as R3’s Corda have been purpose built for enterprise usage in industries such as insurance and tackle issues such as data privacy, scalability and security head-on. Following a period of experimentation with multiple consortia and technologies, insurers are now consolidating their blockchain efforts around Corda.

Testament to this is the recent decision of the industry-leading B3i consortium to port from IBM’s Fabric to Corda or RiskBlock decision to port from Ethereum.  All the major insurance groups and ecosystems are coalescing on Corda in order to effect change and form standards. As Metcalfe’s Law states, the value of a network is proportional to the number of connections in the network squared – the more insurers that build upon on a common platform, the more valuable the platform becomes to all participants due to the interoperability of applications. The consolidation around Corda creates network effects industry-wide.

 

Contract placement: leveraging the network effect

To more tangibly examine the benefits of these network effects, we can look at a specific insurance use case that involves a network of many different entities and counterparties – contract placement.

Contract placement is the process of negotiating a potential insurance contract between a broker and an insurer in order to issue the contract to provide coverage for an end customer. For most commercial and specialty insurance scenarios, except for small commercial and some mid-market products, this is an arduous, complex process involving several entities – a broker, one or more insurers, and potentially a reinsurer and reinsurance broker. Furthermore, outsized risks generally mean that multiple insurers come together to insure the risk at the requested limit price, resulting in additional complexity for the broker in managing the placement process.

Contract placement, with the extensive negotiation cycle between a broker and insurers, as well as between an insurer and reinsurers – with or without a reinsurance broker thrown in – has several inefficiencies related to inter-firm coordination. Extensive manual intervention and reconciliation is required for brokers, insurers and reinsurers to keep track of requests and responses; high IT spend is required for all participating parties to maintain an audit trail of the negotiation history between different entities; and each firm must make heavy investments in document storage systems to maintain separate contracts over the policy lifecycle.

Leveraging the network effect by connecting brokers, insurers and reinsurers onto the same blockchain platform can deliver numerous benefits. These include:

  • Near-instantaneous communication between participating parties to eliminate delays associated with reconciliation and coordination;
  • Real-time consensus among all parties involved in the contract on coverage, price, terms and conditions;
  • Complete audit trail from all sides of negotiations and data exchanges;
  • Greater regulatory compliance throughout the insurance industry due to instantaneous communication of in-force contracts to the regulator;
  • Eliminating the “double spend” problem of having the customer buy the same policy from different insurers by involving the notary (regulator);
  • Reduced IT spend for individual firms, with eventual decommissioning of legacy document storage systems and reducing spend on document generation systems.

 

A brighter future

Blockchain technology offers great promise across many avenues, not only contract placement. Platforms like Corda can add value to many insurance business segments – commercial and specialty insurance, life insurance, personal lines and health insurance, along with niche areas like marine and trade credit.

The industry’s recent consolidation around Corda reaffirms that data privacy is pivotal for a network of enterprises and that the platform’s peer-to-peer data sharing approach matters for insurance blockchain applications going into production. For a highly regulated industry like insurance, only Corda can ensure that the entire supply chain of brokers, insurers, reinsurers and consumers can interact in a seamless, secure and private manner.

From contract placement to insurance as an industry, we are excited to see the new opportunities and efficiencies that blockchain technology will enable between this wide ecosystem of participants now that the right network – Corda – is in place.

[1] https://marketplace.r3.com/solutions/Blocksure%20OS/448484fb-ad8d-40c1-8a1f-47e76381fb85

 

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THE EVOLUTION OF THE TECH CFO

CFO

Gavin Fallon,General Manager, UK, Nordics & South Africa Board International

 

Chief Financial Officers (CFOs) have traditionally been seen as behind the technological curve – the luddite of the boardroom, too attached to their Excel spreadsheets to move with the times. But the role of the CFO is now shifting and becoming more strategically significant to the business, putting them in the ideal situation to make much needed changes in the boardroom.

Despite many business functions being transformed by data, the boardroom remains a place where paper presentations are annotated around the table and, when it comes to finance, the focus is placed on the traditional statutory profit and loss structure. This may remain useful for reviewing historical performance but provides no insight into what may happen in the future. As global events – from political upheaval to health crises – have an impact on organisations, the ability to react in real-time becomes more important than ever. It is here that CFOs have the opportunity to make seismic changes in their business.

 

Gavin Fallon

CFOs now sit in a unique position

CFOs now sit in a unique position, where the traditional responsibility of keeping an eye on the bottom line is wrapped with analytical and operational knowledge to create a far more strategic role. It is by sitting at this unique crossroads and holding a huge amount of knowledge about every area of the organisation that CFOs have the potential to change many aspects of how the boardroom operates. However, in order to fully realise the potential, CFOs must be empowered to take a digital lead.

A lot of the CFO’s most important work takes place on Excel and Essbase, systems that remain rife with risk. In fact, 56 percent of finance professionals believe the spreadsheets they use in their reporting processes are well-controlled and error free, which may well be why 40 percent also believe their reporting is based on potentially inaccurate information (FSN 2018). Not only prone to human error, spreadsheets are also static and do not allow for real-time forecasting or modelling. While CFOs are well aware of this challenge, the fact they have for too long been tied to legacy systems has led to an unintentional knowledge gap about the technology available to enable them to move away from making decisions based on what happened last year, quarter or week.

 

Seeing the bigger picture

With a greater understanding of the technology available comes an evolution and expansion of the CFO’s role within a business. It is no longer enough to make decisions based on static reporting, focusing on the traditional statutory profit and loss structure. Instead they need to use the tools available to play a strategic role with a keener eye on the future, seeing the bigger picture, anticipating what is next, and having the correct contingency plans in place to mitigate risk.

Technology can provide CFOs with full visibility of the entire company at a single glance, with data at their fingertips enabling them to take into account everything from KPIs to operations, distilling instant insights. This offers a level of clarify that means the answer to ‘what happened’ is obvious, allowing for more attention to be placed on ‘what will happen?’.

Consider a board meeting that is discussing headcount requirements based on the launch of a new product. Using traditional methods, a business may well make presumptions based on experiences when previous launches took place. But since that time, there is likely to have been a whole host of changes, both within the company itself as well as in the wider market – from market conditions for the product to the salary expectations of potential recruits.

The use of such technology, however, does not solely require the buy-in from the CFO, or even the finance function. To fully realise its potential in fundamentally changing how an organisation operates, the value will need to be seen by the entire board to, in effect, create a digital boardroom. While such technology has an impact on all areas of the business, allowing senior leadership to understand the impact of a factory in the supply chain closing, for example, it is the finance function that is best placed to show the value and drive adoption.

 

Primed to integrate the business like never before

The CFO is becoming more strategically important, combining analytical, operational and strategic value into a single role. They are primed to integrate the business like never before, acting as the central thread that ties all aspects of decision-making together in a single, unified process. To do so, requires a radical transformation of their role, as the pioneers of new technology. Already a trusted advisor, CFOs can now elevate their role with the ability to effectively forecast and help spearhead the organisational culture change that is required for the shift in mindset that comes with such digital transformation. To maximise the potential of this unique position, the CFO must be equipped with the technology that provides them with the full visibility of the company and clarity in decision-making they require.

 

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