As we head into the second half of 2018, how about a pause for some predictions for the coming period? In descending order of wishful thinking, I suggest that, over the next five years, Unai Emery will win the Premier League with Arsenal; if he is not in jail, Donald J Trump will be comfortably re-elected as President of the United States; and someone, somewhere will crack the conundrum of how digitisation can deliver a radical new way in which complex commercial insurance is developed and distributed.
The proliferation of fintech and insurtech companies has been astounding. Hubs and hackathons have seemingly popped up everywhere, trying to find ways to streamline our processing or redefine the way in which risk is managed and priced. No self-respecting firm of any size can now be seen not to have senior executives with the word “innovation” in their job title. Talk of the “fourth industrial revolution” is constant. And yet, thus far, the response of the sceptic – “this is all very clever, but does it do anything useful” – has been hard to counter.
Perhaps because of this, one of the most challenging aspects of the growth in these technology concepts has not had sufficient attention. What role should our regulators play in the digitisation of insurance?
The thought was prompted when I was asked by BIPAR – the European Federation of insurance Intermediaries, of which I am a director – to comment on a survey that has been circulated by the European Insurance and Occupational Pensions Authority (EIOPA). This sought views on the regulation of insurtech firms and, in a number of areas, asked if there should be a separate regime for them.
Let us get one thing straight. All of us in our industry are committed to finding ways of producing ever better, cheaper products for our clients. Technology, as I set out at the beginning, has a huge role to play in helping us achieve that. But this is a process in which everybody is involved. There can be no regulatory favouritism in an attempt to incubate innovation.
In London both brokers and insurers are investing significant sums in technology research and development. The stories some LIIBA members tell me, especially about the ways in which they are restructuring their back offices using robots, are staggering. As one put it to me: “My robot costs less than half of a person in India. It doesn’t eat, it doesn’t sleep and this time next year it will be twice as clever as it is now.” So, insurtech is not the sole preserve of hipsters up near the Old Street roundabout. Everyone is at it.
Undoubtedly, one impediment to innovation in product or process is the regulatory treatment your new “thing” might attract. It is right that regulators should be sensitive to this. Concepts like the FCA’s regulatory sandbox are sound in principle – although it should be called a sandpit as we are not in America). But they must deliver a level playing field for new entrants and incumbents. Products aimed at vulnerable groups or in high risk categories of financial services should be treated with the same caution – whatever their delivery mechanism. A bad product sold via an app is still a bad product.
Next generation technology is coming, and it is going to deliver fantastic outcomes for our clients. But, in order for that to happen, everyone needs to be treated fairly. There is no monopoly of common sense on either side of the technology fence. Regulators need to recognise this if they are to truly foster innovation rather than frustrate it.
