The link between physics, data and insurance might not appear the most natural alignment at first sight, but for Tanguy Touffut (pictured) it was the spark that led him and his co-founders to develop Descartes Underwriting. In the five years since he left his role at AXA to become CEO of the parametric insurance provider, he has seen the business go from strength to strength, now boasting a team of 170 employees based in offices around the world.
Discussing how Descartes came to life, he highlighted how climate change is creating significant challenges for so many people, businesses and industries – among them, the insurance industry. It soon became clear to him and his co-founders that the insurance industry cannot afford only to look at historical data, he said, but instead it needs to use physics in order to better understand the consequences of climate change on the frequency and severity of floods, storms and cyclones
“We identified a gap in the understanding of climate change,” he said. “So, now we have more than 100 modellers, software engineers and DevOps focusing on understanding climate risks. A challenge we found more specific to the insurance sector was that sometimes the current product offering was not fit for purpose, as it sometimes takes years to process a payment. In the US, it’s an average of 550 days between declaration of loss and payment.”
It was with upping the speed of insurance payouts in the event of weather-related disasters in mind that the Descartes team looked to parametric solutions. These don’t just speed up claims payments, however, he said, but also provide a way to reduce loss adjusting fees, create bespoke solutions and, crucially, offer more transparent coverage.
Over the last five-to-10 years, he said, market conditions have given rise to more complex wordings and more exclusions within insurance contracts. Insurers and reinsurers alike understand the need to improve their profitability and avoid creeping losses – and the solution is having a much more advanced understanding of the costs involved with specific events. Only through having the right data-driven insights will insurers, reinsurers and brokers alike be able to navigate these increasingly complex market conditions.
Touffut noted that well-designed, parametric insurance solutions could prove a “win-win” scenario for the market. As to how this proposition is feeding back to Descartes’ broker partners, he pinpointed the demand from brokers for innovative solutions. Brokers have been facing difficult situations over the last few years with the hardening market, he said, as a knock-on effect of the impact of high inflation and nat-cat losses on reinsurers and insurers.
“It has been difficult for brokers because they are the go-between,” he said. “On the one hand, they have clients that want to keep a low insurance budget or at least have a lower increase in terms of premiums. On the other hand, you have insurers looking for sometimes double-digit rate increases, taking into account the claim ratio and high inflation.
“Brokers have needed to find solutions to avoid the complex dialogue between these insurers and their clients who may simply not have the budget to place their business in the hardening market… So, they have been very positive about innovation. We work only on behalf of brokers around the world, which is a way for us to scale efficiently because we don’t have to build our distribution network, we count on brokers to distribute our products. They know what their clients are looking for, which is a real strength and why we’re so broker-driven.”
Looking at where parametric solutions go next, Touffut highlighted that uninsured losses are growing at a faster rate than insured losses
For the team at Descartes, helping the industry keep pace is an utmost priority, as is building resilience against climate and emerging risks. He said that the growth of the business is critical to that; in addition to opening new global offices, it is looking at expanding its headcount from 169 to 250 employees by the end of the following year. With its global footprint, the firm can sell more than 20 different products to brokers across more than 40 countries – but this is a launch pad, not a destination for the business.
“Given the mix of external and internal challenges facing the market, we felt it was a no-brainer that there was room for innovative players that would be data-driven, building new algorithms and trying to meet those challenges,” he said. “And it is quite challenging to build a company that has a strong backbone in insurance but is simultaneously a tech company. But we recognise the need to find the right mix between insurance expertise and true tech DNA to achieve new solutions – and that’s what we’re looking to achieve at Descartes Underwriting.”
