"The report of my death was an exaggeration," Mark Twain wrote to a newspaper editor in 1897 to squelch rumors that he had lost all his money and died. And agents and brokers might well have said the same thing for many years now. 

Certainly, since I got involved with the industry via Insurance Thought Leadership eight years ago, I've heard a steady beat of people predicting the disintermediation of insurance, with agents and brokers being cut out and insurers dealing directly with customers. 

I never bought the idea because I've seen this movie before. Having followed and written about technology and innovation ever since the Wall Street Journal put me on the computer beat in New York in 1986, I've seen loads of predictions of the demise of a class of jobs only to see a hybrid model emerge. (The only job to fully disappear in the past century is the elevator operator.) 

In the late 1990s, e-commerce giants supposedly were going to put brick-and-mortar stores out of business, and those stores certainly took a hit in the past two decades-plus, but what was called a "clicks-and-mortar" model emerged. Don't look now, but Amazon, the ultimate electronic retailer, is opening physical stores. Likewise, Expedia et al. were supposed to put travel agents out of business, but there are still 55,000 just in the U.S. Bank branches? How passe in a world going digital... but there are nearly 80,000 bank branches still operating in the U.S. 

And we all know how much more important the advice is that an agent offers on an insurance policy, as opposed to that of the sales clerk who helps you pick out a pair of shoes. 

In fact, while agents and brokers certainly have to adapt to a more digital world, those who play their cards right are entering a golden age (as I described in detail in a recent Six Things newsletter. As the attached articles show, technology can remove the need for a lot of detail work associated with filling out forms -- and all that paper, paper, paper -- freeing agents and brokers to spend more time on what they enjoy and what matters to clients. 

Twain, in his wonderfully light way, actually spent most of his letter to the editor complaining about the notion that he had lost all his money, not that he was dead. He would live 13 more years, to the ripe old age (for the time) of 75 -- and lived a lavish lifestyle for the remainder of his days. The same will be true for insurance agents. Despite all those rumors, there is a long life ahead for the field, with plenty of money to be earned in return for important advice and service for clients.  

Cheers, 

Paul Carroll, Editor-In-Chief, Insurance Thought Leadership

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P.S. Here are the six articles I'd like to highlight for agents and brokers:

Latest Insights on Customer Behavior

Increasingly, people no longer view insurance as a transaction – instead, they see insurance as a part of their overall financial wellbeing.

Clearing 4 Hurdles to Better Agency Tech

While technology can provide huge benefits, agencies need to invest their time in understanding tools to get the most out of them.

3 Ways for Agencies to Improve Cybersecurity

By preparing agents to be the first line of defense against cybercrime, insurance agencies can change employees from risks to guardians.

Creating an Empathetic Customer Experience

Your brand’s empathy matters more than ever to customers who’ve undergone what can only be called an emotional roller coaster.

Digital Is the Assistant We Always Wanted

So why do many companies and advisers in our industry resist digital advances like customer self-service and apps?

Managing Your Personal Brand

Whether you like it or not, you have a personal brand. A powerful one differentiation you and creates an emotional connection with your audience.

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What’s driving your digital claims transformation programme: COVID? Competition? Or cost? Whatever the answer, we could be in danger of leaving the customer out of the equation in the rush to digitize and automate insurance processes. 

This is the warning ringing out from a recent research report from IT analyst Forrester, which found that consumers don’t trust "black box" digital claims processes and would much rather speak to a human being. You heard that right. 

Throwing Technology at the Problem

That observation has implications for insurers that have invested significantly in digitizing claims processes to alleviate the cost of call centers and replace manual processes with automated ones. Digitizing was the prevailing advice to insurers from the big consultancy and tech firms, which have argued that digitization leads to improved efficiency and better customer service.

Organizations are rapidly introducing piecemeal tech features to solve a problem, such as chatbots, online customer self-service and photo apps, but from a technology -- rather than a human -- perspective. While these additional services can certainly bring efficiencies to the claims handling process, it is vital to give your customer service agents, loss adjusters and claims managers what they need to provide the human touch. 

It could be time to take a more user-centric approach, reimagine the customer journey and find out what customers actually want. 

Reaching Out

While insurers have been busy adding self-service features for elements such as first notice of loss, the adjustment process and payment, Forrester found that 56% of survey respondents prefer to work with a person rather than use digital self-service tools. 

In fact, customers may well file a claim online using self-service, only to follow up straightaway with a phone call to confirm that the process has worked. This undermines the point of the digital enhancements, which are meant to lessen the load on claims and contact center resources, Forrester says. And it also means the features are not necessarily saving the business money but doubling up on customer touchpoints.

Even the most tech-savvy customers call to follow up, says Forrester principal analyst Ellen Carney, who co-wrote the report. This is mainly because they want somebody to explain what is going on behind the scenes regarding the insurer’s decision-making and process. 

The Human Touch

Claimants crave the human touch, Forrester notes, perhaps after experiencing a traumatic event: a fire, flood, accident or loss, and this desire should prompt a rethink. 

It isn’t an argument against claims process automation, or AI features that speed up claims assessment, such as natural language document screening and virtual assistants, or data analytics that improve risk, fraud and post-claims reviews. 

However, the kinds of capabilities you may need to prioritize are the ones that enable your people to be more effective in delivering an empathetic experience and being more human. These could be where you make your efficiencies, speed up your processes and build trust and relationships that are profitable in the long-term.

See also: Designing a Digital Insurance Ecosystem

A User-Centric Approach

The end-to-end (E2E) claims process is clearly larger and more complex than simply the part the customer sees. This is a key reason why customers choose to call the insurer as well as communicating online. However, it’s not enough just to streamline and automate those internal processes. Insurers need to take a user-focused approach and prioritize and identify the areas that need investment.

The goal may be to bring greater transparency to opaque internal systems, or to dramatically improve and humanize the elements of the claims process that matter to the customer. You can then build the other parts of your services around the IT intervention in a way that supports and enhances the whole process.

For many insurers, the E2E process is held over multiple systems, with no single point where they can add value to a customer interaction. So, to enhance and free up staff to focus on the "golden moments" of the process will mean investing significantly in systems and processes in multiple areas. 

There is an alternative, however, and that is to design the E2E process by centering it on the user and aligning your business to respond quickly to changes in customer needs.

Move Fast, Fix Things

Amazon founder Jeff Bezos talks about a Day 1 philosophy, which is that the organization should always have an entrepreneurial, start-up mindset. This enables it to make high-quality, high-velocity decisions. The mindset also provides the flexibility to avoid a one-size-fits-all decision-making process, and the ability to pivot quickly. 

“You need to be good at quickly recognizing and correcting bad decisions. If you’re good at course-correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure,” Bezos advises. 

Incorporate Design Thinking 

A more human-centric, responsive and personalized approach could involve incorporating design thinking from the start, where you first empathize with the user and research their requirements; then define their needs and problems, create ideas, prototype your solutions and finally try them out. Design thinking could make the difference between presenting your customers with an opaque black box claims system, and one that is more interactive, transparent and customer-centric.

Adopt an Agile Approach 

Defining a new process up front and then trying to build it into everyday operations rarely works, and the customer needs are ever-changing. What works today may change in a year. Your approach must be able to respond to change, so you need an approach with agile thinking at its core. This is as much about a mindset and approach as it is about development techniques and technologies. 

Make Streamlined Decisions

At WORTH, one of the biggest blockers we find working with clients is the processes they use to make decisions. However, we find that when they are prepared to change their approach to decision-making, and perhaps incorporate multi-discipline teams, flatten their decision-making structures and empower individuals to decide and act, businesses are open to course-correcting and can take a transformed approach to innovation. 

Technology should always be a means to an end, rather than an end in itself. Let’s humanize the insurance claims process and take the industry to a new level of customer-centricity.

Executive Summary

Space today has become big business that will only expand thanks to the excitement and focus driven by the likes of Bezos, Branson and Musk.

In the last decade, the space sector has seen over 50% growth in commercial space initiatives. The commercial portion of the space ecosystem saw $200 billion of investment in 1,500 companies.

The marketplace for space insurance today revolves around policies for physical assets, in particular satellite coverage. Coverage includes pre-launch testing and facility exposures, launch and orbital protection, as well as coverage for ground support services. For the nascent space tourism industry, the current practice is that all passengers sign a waiver of liability and assume full risk themselves. This is serving as a bridge until the insurance market can provide a solution.

An emerging insurance concern is that current policy language may not be contract-certain regarding space exposures. Even though there was never intent to provide space coverage, gray areas create Black Hole Risk. Agents, brokers, carriers and policyholders who may soon be participating in the space ecosystem must all pay attention.

Insurers need to prepare now for the exponential growth in this market segment and the growing needs of individual and corporate customers.

A Call to Action for the Insurance Industry

More crewed orbiters, payloads and satellites will launch, and space station construction is underway. By 2022, private citizen expeditions to the International Space Station (ISS) are planned, and in 2025 mobile space equipment will be launched. Space commercialization is not a theoretical concept, it is a reality. Insurance carriers must take the following steps now:

• Review policies for Black Hole Risk.
• Modify existing policies and procedures to ensure underwriting intent is clear for current products.
• Review legislation to determine where commercial insurance may be needed.
• Engage with and listen to the thousands of private entities providing infrastructure, distribution and application solutions for space as well as their brokers and agents to understand their future product needs.
• Determine long-term capital planning to sustainably enter the marketspace.
• Examine how participation in space insurance aligns with corporate environment, society and governance (ESG) goals.
• Partner with experts in science, technology, engineering and mathematics (STEM) and health fields as well as reinsurers to build actuarial data and insurance models to create products.
• Work with regulators to be at the forefront of shaping space insurance paradigms.
• Educate and upskill underwriters, adjusters, brokers and other stakeholders for this new insurance ecosystem revolving around space commerce.

A Galactic Opportunity

The present insurance market generates $6.3 trillion in annual premiums (life & non-life) supporting a world economy of $94 trillion. The space economy is expected to reach $1 trillion by 2040, and the colonization of one million people in two centuries has been credibly proposed. With all the same insurance needs on Earth being required in a new ecosystem, the celestial insurance market could reach $67 billion GWP. This is a once-in-a-generation opportunity for the insurance industry, and preparation and leadership must occur now.

Introduction

Exploration is one of the loftier birthrights of humanity, and the desire to discover the uncharted, a driving motivation. Over time, we’ve emerged from the cave, crossed vast oceans and now we reach for the stars. The modern insurance industry has played a critical role in this bold and adventurous heritage. Since the humble beginnings in a small coffee shop in London, insurance has supported those willing to leave safe havens and venture into the tempestuous unknown.

66 years ago this month, the first space race began when the U.S. and the Soviet Union each announced, within four days of each other, their intentions to launch satellites into space. This month marks the beginning of the second space race. Instead of two national superpowers, we have witnessed two commercial superpowers, in Richard Branson and Jeff Bezos, who, in aiming for the stars, have ushered in the commercialization of space. Their celestial ambitions are accelerating the pace of innovation and a surge of growth in the private side of the space sector. As investment in the space industry proliferates, insurance professionals must prepare today for space and near-Earth insurance solutions.

The space economy is approximately $450 billion, according to the Space
Foundation. The sector incorporates infrastructure such as satellite and
rocket production; distribution, which includes Earth-based companies that
connect cosmic networks; and applications, which are services that support
enterprises reliant on satellite and other orbital systems.

There will be short-term, medium-term and long-term opportunities, which must be supported by carriers, reinsurers and brokers alike. Insurance, as an industry, has always enabled and supported innovation. The space industry will be at the epicenter of invention and advancement for decades to come. Though some of the necessary solutions can be built upon traditional coverages, avant garde approaches will also be required to mitigate more contemporary risks. This second space age will test the limits of the insurance industry, but as it has done since its founding the industry must rise to the occasion as humanity strives to expand existing limits and traverse the universe.

The Space Insurance Market Today

The marketplace for space insurance today revolves around policies for physical assets, in particular satellite coverage, which is predominantly dominated by a handful of European insurers. Coverage includes pre-launch testing and facility exposures, launch and orbital protection and coverage for ground support services. Additionally, other specialty coverages such as manufacturer’s warranties, broadcast service and other business interruption are also available. Lloyd’s of London estimates that the space insurance market is about $500 million annually for satellites and non-human cargo. With respect to pre-launch, it is estimated that only $10 million to $15 million in premiums are generated annually, indicating that the majority of risk and premium occurs post-launch, considering the value of a lost satellite can range from $200 million to $400 million.

Interestingly, space insurance is not triggered until launch. Prior to liftoff, the insured assets are earthbound and therefore covered under any inland marine policies in force. As with all current pre- or post-launch insurance, it is property-related, as human passengers have been minimal. Even in the case of NASA astronauts and payload specialists, their occupational injuries are covered by the TREAT Astronauts Act.

The current practice witnessed on the most recent flights is that all passengers must sign a contract agreeing they are fully liable for their own safety. This is serving as a bridge until the insurance market can provide a solution. According to the New York Times’ DealBook, both Jeff Bezos and Richard Branson flew into space without purchasing any liability insurance. Neither of the corporations provided comment or further detail.

See also: ITL FOCUS: Catastrophic Weather

Black Hole Risk

An interesting topic within the insurance industry the last several years has been the discussion around "silent cyber." The term refers to the risk that policies that were not intended to cover cyber liability may in fact do so because the risk is not expressly excluded. In essence, there is a lack of contract certainty with respect to cyber liability. In this new space race, insurance companies may find their policies are not contract-certain regarding space exposures even though there was never an intent to provide such insurance. We call this situation Black Hole Risk, and it should not only be a concern for carriers but for policyholders who may soon be participating in the space ecosystem. Agents and brokers also need to consider Black Hole Risk, as policyholders who have claims denied will turn to their insurance advisers and question why they have no coverage. Insurance stakeholders should consider the following actions:

• Review life insurance applications and policies to determine if space travel is expressly excluded.
• Determine if the biological effects of space travel could be considered a pre-existing condition that would materially affect a health or workers’ compensation claim.
• Ask if the worldwide coverage endorsement on a products liability policy includes space if a manufacturer’s component part product was used beyond the Karman line and a loss occurred. These are gray areas all participants within the insurance industry need to contemplate now.

The Regulatory Basis of Liability in Space

To prepare for the complexities of insuring commercial expansion in space, carriers must understand the regulations on which liability surrounding space exploration is based. Early international regulations for space exploration include the 1967 Outer Space Treaty and the 1972 Liability Convention for Damage Caused by Space Objects. The 1967 treaty contains two primary arms control provisions, including the agreement that no countries can use nuclear weapons or weapons of mass destruction in orbit or in outer space, as well as prohibiting the installment of any type of military base or related structure on any celestial body. In addition, the treaty outlines international liability for damage caused by objects launched into space and establishes jurisdiction and control as being tied to the state party that launched the object. The Liability Convention of 1972 expanded on this concept by clarifying the responsibility of the launching state and liability for compensation due to damage from space objects as well as outlining procedures for the settlement of damages.

However, there is no clear indication that the Liability Convention intended to include or even contemplated liability related to commercial passengers of space objects. The Liability Convention states that the launching country is liable without consideration of fault for damage on or to the surface of the Earth as well as to aircrafts in flight, and may be liable if found at fault for damages occurring elsewhere, such as to another space object. The liability for passengers traveling on the space object itself are not specifically represented in either of those scenarios. In addition, the launching state nationality and passenger state of citizenship may be different, which may affect the applicability of these liability standards. Further, when the Liability Convention was drafted, private sector companies were not in the market of independently conducting space launches or space flight, so the determination of the launching state was more obviously tied to a government entity or country, while today responsibility may be less clear. It is important to understand the ramifications and applicability of these regulations when considering policy language.

In the U.S., the commercial space transportation industry was once regulated by the Department of Transportation, but oversight was transferred to the Federal Aviation Administration (FAA) in 1995 with the formation of the Office of Commercial Space Transportation. The purpose of this organization is to provide regulation for the U.S. commercial space industry, maintain compliance with international regulations, protect public and national security and support commercial space activities within the private sector, lobby for changes in regulations and procedures and strengthen the space transportation industry in the U.S. As a regulatory body, the FAA sets financial responsibility requirements for commercial spaceflight in the U.S. (see, Licenses & Permits: Commercial Space Transportation (faa.gov) for details). The FAA requires that commercial launches are protected by third party liability and government property damage insurance, which provides coverage for injury to the public or damage to government property. The Commercial Space Launch Act Amendments of 1988 provide alternative methods to meet financial responsibility as well as government backing for third-party claims above the insurance requirements, up to $1.5 billion. The Space Act of 2015 affirms this government backstop but only until 2025.

The 2004 Commercial Space Amendments Act excludes regulation of onboard passengers and instead requires informed consent and a signed waiver of liability. However, as insurance professionals are aware, exculpatory agreements are not fool-proof, and negligence by an operating party may still result in a lawsuit. In the case of space travel, this has yet to be tested in the courts. Insurance providers have stated that regulators will soon require liability policies for trips into space. Data on such trips is limited, and this makes the current product difficult to underwrite and price. There is a historical death rate for space travel of around 3%, but the volume of persons in space is a small sample size (553) in comparison with the insurance underwriting and actuarial approaches for these liability policies, and a large portion of this sample population is from decades ago, so using the historical number might not adequately account for changes in technological improvements.

The U.S. government has been supportive of a robust commercial space industry, and several codes and acts are dedicated to furthering the future of commercial space exploration. Many other countries have their own form of space regulation, which are submitted to the U.N. and can be viewed online: Space Law: National Space Law Database.

Industry Outlook

The space industry's immediate economic outlook remains speculative, yet optimistic. Opportunities exist, but there must be a willingness to plan and prepare now, for success years into the future. The U.S. Bureau of Economic Analysis wrote in December 2019 that the global space industry was $414.8 billion and employed 2.6 million workers in the U.S. in 2012. However, the space industry is not immune to the global effects of COVID-19. PricewaterhouseCoopers suggests that being "heavily tied to institutional budgets and overall wider public agendas, the space sector is expected to be impacted by changing government priorities and agendas."

According to Morgan Stanley, "the global space industry could generate revenue of more than $1 trillion or more in 2040, up from $350 billion, currently." The company also suggests that there is a growing partnership between public entities and private interests. Combining the forces of public institutions with private investment could result in more public interest that would push humanity deeper into space.

The word "unknown" is used to describe space not only in terms of science and understanding, but also with regard to the economic portion of the equation. The overall outlook is unknown, but many are predicting that untold riches can, and will, be made in outer space.

The extraordinary profits could be from any number of different outcomes, but there is a growing optimism about space mining. The space mining industry is currently not producing any economic gains. However, the market could grow to astronomical proportions if there is a feasible and practical mechanism to bring back elements from outer space to Earth that have the energy capacity to power all of New York City, or a new element that could cure cancer. Physics World published an article that outlined the ability to mine space by arguing that "legally, nobody can own an asteroid, but the US Space Act of 2015 allows companies to own the materials they mine from bodies in space." Some companies are ready now to use satellites to find mining deposits undiscovered on Earth, according to an article written for the Wharton School of Business. But the same article indicates that "for decades, relatively easy access to space and the big profits to go with it have dangled elusively just over the horizon," thus adding to the unpredictable future economic outlook overall in the space industry.

See also: Digital Revolution Reaches Underwriting

While these initiatives are not fully commercialized yet, they are not just theoretical either, and the insurance industry needs to begin addressing these very real needs. During the July 11 broadcast of the Virgin Galactic flight on Bloomberg TV, commentators provided the following insights:

• 2018 saw 2,000 satellites in orbit, which will be 100,000 in 15 years
• All data centers will be in space, and internet and cell cover will be uninterrupted worldwide 24/7 in 15 years
• 600 to 700 people have already paid $200,000 for suborbital Virgin Galactic flights, which are scheduled to take off in 2022
• Axiom plans to have all-inclusive 10-day space excursions to the International Space Station in 2022 for citizen astronauts

Insurance as a Space Facilitator

Insurance professionals must prepare today for needed space and low-orbit insurance solutions. New insurance products will enable continuous innovation within this evolving market, providing a safety net for costly assets and precious lives. However, for the insurance industry to support human expansion into space, it will need supportive partnerships, regulatory clarity and sensitivity to environmental and social issues.

Payload Share

As this world looks beyond its limits for new resources, the insurance industry can play a pivotal role in facilitating these complex expeditions. As rare earth resources become more scarce and the mining industry continues to pollute the air and land while using dangerous chemicals in its process, we are entering an unsustainable cycle. Asteroid mining could bring to Earth nearly unlimited resources relative to what is available here and do so in a more environmentally viable manner. Asteroid mining is not possible today, but as space travel technology continues to evolve and the cost becomes cheaper, we have the opportunity to turn this into a reality. This is where the insurance industry has the opportunity to partner. These projects will obviously be quite large and expensive, especially initially, so a new product or payment mechanism can be created. Aside from just a large premium on the front end, which could potentially hinder these efforts, insurers could instead use a payload share as part of the compensation for transferring these risks. Coverage limits for failure would be provided, but upon successful mission the insurers would receive a percentage of the value of the haul in lieu of or in combination with premium. Such an arrangement would align interests and aid the space mining industry in creating a safer and more sustainable environment.

Enhanced Satellite Coverage

Current single satellite launch coverage has a policy period from launch vehicle separation to establishment of intended orbit plus one year. In-orbit coverage protects the asset typically for up to 15 years. With newer satellites that can have life expectancies of 18 years or more, there may be an increasing need for extended life coverage. Additionally, satellites will be launched with increased frequency as part of a constellation of orbiters. Multiple satellites may be launched together or separately over a period. New coverage will be needed to cover not just the individual satellites but the operation as a network as well as the elongated period required to position the constellation as single satellites are added to the ecosystem.

Space Debris Abatement Coverage

As activity in both low-Earth orbit (LEO) and geospatial equatorial orbit (GEO) increases, more space debris will accumulate. As on Earth, it should be expected that commercial enterprises will be liable for space pollution. It is estimated that there are already over 750,000 pieces of space junk in orbit. Coverage for pollution legal liability or contractor’s liability insurance to support abatement companies will be needed. The European Space Agency (ESA) has already signed the first contract with ClearSpace to develop the Space Claw, a debris removal space vehicle that is expected to launch in 2025. Japan’s answer to space junk is to develop wooden satellites, which would burn up on re-entry. This poses additional insurance considerations, as the outer limits are developed, regarding the possible myriad of building material and composite options that could be used and their lifespan before failure.

Space Technology Wraps, Warranties, Construction Bonds and Product Liability

Terrestrial off-shore space sports, stellar space stations, galactic resorts, O'Neill cylinders, and colonies on the Moon and Mars, in addition to mining asteroids for minerals, water and other natural resources, will require incredible levels of ingenuity and resultant technology to develop this infrastructure. Performance bonds for technology installations and construction developments will be crucial. Extended warranty coverage on both the life of the technology as well as its optimal operational efficiencies will be sought-after protections, too.

Even less technology focused, more traditional companies may need new protections soon. Consumer products manufacturer Procter & Gamble announced in July 2021 a partnership with NASA to develop fully degradable Tide brand detergent that can be used on extended duration trips to the Moon and Mars. We will see more of this innovation from non-space focused corporations, and new products consumed in new environments will require for-the-moment coverage.

Space Catastrophe Annuity Program

While we are experiencing heady days after two successful crewed launches by Virgin Galactic and Blue Origin, inevitably there will be setbacks and tragedy. Should such events occur too early in the days of this new space age investment, interest could wane. Consideration should be given to developing a long-term, public-private insurance partnership to share in the cost of a space catastrophe. Sharing of risk between governments and commercial partners would ensure the sustainability of the drive to space. As mentioned, the SPACE Act of 2015 provides a loss back-stop for catastrophic launch events, but with a sunset provision in 2025. A longer-term concept was developed in the 1950s to encourage the growth of the nuclear industry. A space cat annuity program modeled off the Price-Anderson Nuclear Industries Indemnity Act of 1957 could serve as a more sustainable solution.

Space Tourism Travel and Accident Coverage

With space tourism quickly becoming a reality, there will soon be a market for space travel and accident coverage. As of July 9, 2021, it has been reported that approximately 600 people have reserved tickets for future space flights with Virgin Galactic. The numbers will likely increase as successful trips are completed, competition increases and prices start to decline.

Short space flights may not result in some of the more debilitating long-term effects of extended space travel, but the launch process itself creates a unique experience for the human body that could result in death or injury. Astronauts train extensively for space travel, but tourists will not be able to dedicate the same amount of time and effort to prepare. In addition, during an emergency in space it is unlikely that the vessel will have adequate medical equipment or the freedom of movement to provide medical attention to passengers in distress. In the event of a medical emergency in flight, extraction from the landing site may need to be arranged if it is remote or not near a medical facility. It is also possible that a space vessel could veer off course due to emergency, and unexpected travel may be required to return a passenger to the planned landing location. These items may be addressed with space tourism travel and accident coverage.

Reviewing a risk for insurability will rely heavily on knowledgeable underwriters who understand the mechanics of space flight, regulatory requirements and medical considerations for the screening and training of passengers. Due to the complex and specialized nature of space travel, insurers should seek partnerships with external experts who can guide underwriting requirements and train future space insurance experts to have a holistic view of the risks at hand.

Citizen Astronaut Life, Accident and Health Coverage

Additional insurance considerations include Citizen Astronaut Life, Accident and Health coverage, which pose interesting hurdles as, in many cases, coverages particular to these exposures are largely being constructed or non-existent. Which is not to say that they are not carefully being considered or sought after. For example, NASA has “called for responses from the industry for its plans for a liability framework for privately funded missions to the ISS. NASA's plans include requiring private astronauts to buy life insurance.” There are also questions raised about which coverage types apply with regard to space tourism and whether space tourism falls under aviation or space insurance. This is particularly important in the case of death, as rules surrounding airline responsibilities have had rules and precedents established in the case of passenger fatality. The same cannot be said of space tourism.

As government employees, NASA is able to grant certain benefits and coverages to its astronauts, including FEGLI (Federal Employees’ Group Life Insurance); however, the same is not necessarily the case with private or citizen astronauts. Carriers have historically shied away from providing coverages to those in high-risk professions, and in many cases even list specific excluded professions. In the U.S. private sector, workers’ compensation coverage is required in most cases. Companies may soon have employees traveling into orbit to help with space infrastructure development, which would be a new exposure not currently contemplated in underwriting.

Similarly, accident and health policies are largely provided by employers to employees in the case of sickness, accidental injury or accidental death. With space tourism, a new version of these policies may be needed to more specifically address space-specific exposures.

Satellite-Supported Data Centers

With cyber risk being one of the most prevalent risks on the minds of top executives through the global economy, everyone from the C-Suite to the regulators to the end customer is wondering how companies are going to be protecting their data. Companies today are already looking at data centers in orbit, by building servers into satellites. These companies will be providing services to the entire commercial space industry, which will be supporting trips to the Moon, Mars and beyond. The concept of “Space Infrastructure as a Service” or satellite Internet of Things are terms with which all insurance professionals looking into space insurance should begin to familiarize themselves.

Satellite Enhanced Cat and Climate Modeling

Back on Earth, satellite imagery has long been a part of catastrophe modeling. As the number of satellites launched into space skyrockets and the technology on each satellite continuously improves, insurers will have access to a much greater availability of observational data. Insurers will be able to use this data to more quickly and accurately assess loss in affected areas. The greater coverage being provided by the great number of satellites will allow for markets to be opened up that were previously untapped or incorrectly underwritten or modeled. With more consistent, higher-quality data, insurers will be able to insure the entire globe better. If the costs get to an extremely affordable level, do we see insurers or CAT modelers launching their own proprietary satellites into orbit that allow for further differentiation within the property insurance market?

See also: A Quarantine Dispatch on the Insurtech Trio

Partnerships

Massive undertakings such as these certainly require work and collaboration from various groups, including industry trade associations, reinsurers and commercial partnerships.

As far as trade associations, there are numerous organizations engaged. The American Astronautical Society compiled a substantial list that contemplated various sub-categories such as international federations, institutes and professional associations, international space agencies, international space education organizations and U.N. organizations. This demonstrates that there is significant engagement on a global scale.

Regarding reinsurers, many large carriers are currently participating. A few notable companies include AXA XL, Hannover Re and Munich Re. Additionally, there are space products coming out of Lloyds of London, which are backed by as many as 18 syndicates, including Brit and Hiscox.

Commercial partnerships are also playing a critical role in driving space activities forward. Currently, there are three primary players in this space: SpaceX, Virgin, and Blue Origin. Backed by iconic billionaires Elon Musk, Jeff Bezos and Sir Richard Branson, these organizations have already committed to continuing their missions. Interest and demand in this area continue to grow. Richard Branson recently said that, in addition to the keystone organizations already mentioned, there is room for 20 space-tourism-centered organizations to compete for space-tourism passengers.

Finally, these partnerships depend on the support and participation of scientists and academics, without whom none of these accomplishments or goals could be accomplished.

Regulatory Outlook

In the regulatory environment, we can expect some big changes as the U.S. and other countries see greater opportunities for the commercialization of space. We believe that more clarification will emerge regarding liability and standards of care for civilians traveling on spacecraft. There will be more definition around liability stemming from launch site location/control and clarification in regard to questions on whether citizenship plays a role in liability determination. The U.N.’s Office for Outer Space Affairs will continue to advocate for the peaceful use of space and will continue supporting their core guidelines, including:

1. Setting policy and regulatory framework for space activity
2. Promoting the safety of space operations
3. Encouraging international cooperation, capacity-building and awareness
4. Promoting scientific and technical research and development

Environmental Considerations

This new space age coincides with an increased focus on environmental, social and governance (ESG) issues. As commercial enterprises push into space endeavors, their insurance partners need to consider how they align their support of policyholders with their own corporate ESG values.

The most obvious issue in this area is the pollution of space. As mentioned, a problem with space junk already exists. Carriers can promote environmental safety by supporting the innovations of space debris abatement technologies. Space initiatives also provide the opportunity to mitigate climate change here on Earth. Space mining has the potential to eliminate the need to extract fossil fuels from the Earth as well as create additional supplies of water. On CNN, during the Blue Origin launch broadcast, Adam Frank of the University of Rochester commented that space mining could allow for one million people to live in space in the next 200 years. These advancements would reduce global warming, and with more jobs and new places to live could also address income inequality and overpopulation. Insurance companies that back these industries would be doing so aligned with their ESG aspirations.

Conversely, however, an exponential commercialization of the outer limits would have more satellite constellations in orbit, more space traffic and a higher likelihood for collision, creating more junk in space and possibly debris falling to Earth. We also must recognize that, while colonization of space could be attainable in the next century, in the meantime, with billionaires speeding to the Karman line, there is the potential for a widening of inequities.

Insurance carriers therefore not only have to weigh the financial aspects of risk vs. reward when deciding if they want to deploy capacity in support of this new space age, but also how their method for choosing whom to support aligns with their corporate values.

Key to striking this balance is a robust governance framework. As discussed, partnering with stakeholders from investors, customers and regulators, to technology experts, reinsurers and in many cases government agencies on national security matters is critical as insurance companies decide to enter this industry sphere.

Conclusion

There is no way to know what will eventually come out of this new great space race. Throughout the history of NASA, many products have been discovered or invented that have become extremely commercially viable. These items include; camera phones, scratch-resistant lenses, CAT scans and radiography, LED lights, athletic shoes, non-detonation land mine removal techniques, water purification systems, the dust buster, ear thermometers, home insulation, jaws of life extraction tools, wireless headsets, memory foam, freeze dried food, adjustable smoke detectors, baby formula, artificial limbs, the computer mouse and the portable computer. While NASA did not set out to create likely commercially successful products, the research and ingenuity required to propel humankind into the unknown and unexplored made all of these examples possible.

This is a once-in-a-generation opportunity for the insurance industry to provide a social good to an entirely new celestial biosphere. Since its early days, the industry has supported innovation, provided security and defused and distributed risk so human endeavors are achievable. The time is now for the insurance industry to prepare and show leadership in this New Age of Space.

More Weather Disasters on the Horizon Paul Carroll, Editor-in-Chief of ITL I remember when I first heard about El Nino, the warming of the Pacific Ocean off the coast of South America that influences weather patterns around the world. It was almost 40 years ago, when I was a young pup in the Wall Street Journal’s Chicago bureau, and a fellow who covered the commodities markets for us learned that some were starting to trade based on educated guesses about how this phenomenon would affect crops of corn, wheat and so on the following year. El Nino seemed to be news to everybody, not just me, so Tom wrote a story about it, and it’s stuck with me ever since: this pattern named because it appears around Christmas, marking the birth of El Nino, or, The Boy. I later learned about the flip side, a cooling of the Pacific known as La Nina, or, The Girl, just to distinguish it from The Boy. Far more is known about the phenomena now than in the early 1980s — sensors, satellites and sophisticated computer modeling will do that — and the forecasts for the coming winter are looking rough, especially because they build on the tough weather we’ve already seen this year. continue reading > Majesco Podcast  Tune in to hear Majesco’s Chief Strategy Officer Denise Garth and Deloitte Consulting’s Senior Manager Ahmed Abdul-Wali discuss what is required for next-gen billing today and how insurers need to adapt new billing and payment solutions. Register Now SIX THINGS The Defining Factor in Underwriting Success by Kirsten Mitchell-Wallace and Richard Clarkson if an insurer grasps the granularity of their data assets, this facilitates outperformance in other areas. Read More What’s Driving Boom in Specialty Insurance by Dave Zeornes “There is an intense craving for customization and for partners who truly know what they’re doing." Read More Use AI to significantly reduce fraudulent claims by millions of dollars and make the front line more productive and successful battling fraud. Sponsored by Daisy Intelligence This eBook explains trends in insurance fraud, the reinforcement learning approach, keys to successfully embracing AI and how to save millions in fraudulent claims payments. Read More How to Avoid Major E&O Claims by Dan Narayan "There is so much opportunity for automation that there is no justification for manual policy checking and data entry." Read More The Key to ‘Augmented Intelligence’ by Satyakam Mohanty Augmented intelligence changes the paradigm, helping insurers evolve processes, cut costs and improve customer experience with faster insights. Read More Why Nonprofits Can’t Ignore Cyber Risk by Scott Konrad Nonprofits underestimate the cyber threat, believing they’re less attractive targets than for-profit enterprises or external service providers Read More Smartest Idea for High-Hazard Businesses by David Fontain When an employee says they’re too tired to finish a physically demanding task and need to rest, that needs to be okay. Read More The Right Way to Engage Customers Sponsored by Statflo The right way to engage with customers is, of course, whatever they say it is – which likely means much more texting than you’re doing now. Watch Now MORE FROM ITL Making the World More Resilient In this webinar, ITL Editor-in-Chief Paul Carroll sits down with Chris Wei, Chairman of the Executive Council of the International Insurance Society and a longtime senior executive at Aviva. In advance of the IIS annual forum on Sept. 27-29, they explore how the industry can help drive a sustainable global recovery.   Watch Now OCTOBER FOCUS: Catastrophic Weather   In the face of catastrophic weather, insurers are doing what insurers do: helping identify, quantify and mitigate the risks, while making customers whole when disasters strike. They are also increasingly digging further into the roots of the problem. As you’ll see in the articles we’ve highlighted for this month, insurers are focusing more on how to raise the alarm about climate change and on how to make the world more resilient in the face of the challenges that we face today and that are surely coming. Keep Reading Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet Forward SUBSCRIBE TO SIX THINGS

Two weeks ago, during an on-stage conversation in Las Vegas with Munich Re board member Lisa Pollina, Chubb CEO Evan Greenberg commented that insurtech's promises of transformation are "just hype." With that, Greenberg put a spotlight on a debate that has been percolating since the term “insurtech” was coined around 2010, when Germany-based Friendsurance created a peer-to-peer insurance community.

There is no way to know whether Greenberg’s comments were meant to provoke and engage the audience – made up mostly of entrepreneurs, insurtechs, investors and insurance industry leaders  – or whether he meant exactly what he said as dismissively as it sounded.

Either way, he was mostly wrong – and a bit right. 

Insurtech Confusion

Not only does our industry use the word "insurtech" inconsistently, but we can’t even agree on how to spell it – “insurtech” or “insuretech” and whether to capitalize it. (Regardless, let us agree that insurtech refers to the use of technology innovations designed to significantly reduce cost, increase efficiency and improve customer experience in legacy insurance industry models.) 

"Insurtech" is a combination of the words “insurance” and “technology” and was inspired by the earlier term “fintech,” which has now spawned an entire generation of “____tech” abbreviations, including in our own industry: ClaimTech, PropTech, MarTech and more. 

Entire global ecosystems have emerged to finance, support and service the global insurtech industry, from accelerators, incubators, college programs, conference and networking events and dedicated media sites and publications to new investment funds and models.    

Evidence That Insurtech Is Real

Saying something is hyped implies a misleading exaggeration of something’s importance or benefits. The insurtech phenomenon is many things but definitely not hype. Insurtech is a movement, and it is very real and highly transformative. One good measure of its importance is the success of the very event where Mr. Greenberg offered his comments: InsureTech Connect. Over 6,000 of the faithful braved the lingering risks of a pandemic to make the pilgrimage to Las Vegas to attend ITC. 

The underlying conviction driving founders and backers of insurtechs is that the insurance industry is ripe for innovation and disruption. Insurtechs explore opportunities that large conventional insurance firms are less interested in or equipped to exploit, such as offering hyper-personalized insurance policies, usage-based insurance and parametric insurance and using the new volume of data streaming from IoT-enabled sensors and devices to price premiums more dynamically and contextually.

Included in the ITC audience were a healthy number of current and potential insurtech investors whose industry is wagering tens of billions of dollars of capital on the prospects of insurtechs. 

In fact, according to a July 2021 McKinsey report titled “Insurtechs are increasingly ripe for insurer investments and partnerships,” the analysis of 2,000 global insurtechs reveals rapid growth, evolving product focus and a growing crop of innovative opportunities. The report also describes how rapidly insurtech funding has grown, identifying 1,719 deals from 2010-2021 totaling almost $25 billion globally.

Insurtech Categories

In a March 2021 Gartner report titled "Top Trends in Insurtechs for 2025," analyst Kimberly Harris-Ferrante identified two distinct categories of insurtechs – challenger insurers and emerging solution providers – and predicted that both “will continue to gain traction and reshape the insurance industry through 2025.”  

One might argue that the challenger insurer category includes some insurtechs that do not yet pose a real threat to conventional insurers; Root, Lemonade, Metromile and even Hippo come to mind. To date, their stock market performance has been disappointing, and this could well be the category of insurtechs for which Mr. Greenberg’s comments were intended.

However, the insurtech category of emerging solutions providers has not for the most part disappointed. Many of these companies have provided attractive exits to their founders and private equity and venture capital investors as they have taken themselves public, merged with competitors or been acquired by conventional insurers. 

See also: Boosting Cyber Hygiene With Insurtech

Greenberg Was Right, But Only in Part and Only for Now

If Greenberg meant that technology and hype do not change the fundamental fact that insurance is at its core the art and science of taking risk, then perhaps he was right – in part. It’s hard to argue that a company formed in the past 10 years or less could have the depth and breadth of experience of one that has been in the business for a century, or that it can meaningfully compete with one of the largest and best-capitalized competitors in the industry.

Consider that only days after Greenberg’s comments, Chubb announced the acquisition of Cigna’s Asia business to increase their A&H market reach for $5.75 billion in cash. Conventional insurers are certainly best at the “art” aspect of risk taking.   

But as far as the value of experience in the “science” part of risk taking, legacy approaches and models could actually become the Achilles heel of incumbent carriers. New technology-enabled information sources such as connected cars, homes and people coupled with artificial intelligence and machine learning are replacing previously retrospective underwriting and pricing models with real-time, contextual and dynamic data models that enable insurers to price risk more accurately, fairly and ultimately more competitively and profitably. 

The insurtech movement is real and important and exciting and valuable and is quickly evolving. It can be described in many ways – but not as mere hype.

Insurance companies must be more emphatic in battling fraud and exploring new approaches and technology. Not all technologies, however, will deliver the results insurers need and/or expect. This eBook looks at how insurance fraud is evolving, the best ways to identify emerging typologies, align your teams and operations, and the tools and techniques used to combat fraud.

Download Whitepaper

I remember when I first heard about El Nino, the warming of the Pacific Ocean off the coast of South America that influences weather patterns around the world. It was almost 40 years ago, when I was a young pup of an editor in the Wall Street Journal's Chicago bureau, and a fellow who covered the commodities markets for us learned that some were starting to trade based on educated guesses about how this phenomenon would affect crops of corn, wheat and so on the following year.

El Nino seemed to be news to everybody, not just me, so I had Tom write a story about it, and it's stuck with me ever since: this pattern named because it appears around Christmas, marking the birth of El Nino, or, The Boy. I later learned about the flip side, a cooling of the Pacific known as La Nina, or, The Girl, just to distinguish it from The Boy.

Far more is known about the phenomena now than in the early 1980s -- sensors, satellites and sophisticated computer modeling will do that -- and the forecasts for the coming winter are looking rough, especially because they build on the tough weather we've already seen this year.

I am surely sensitive because I live in Northern California, where we are experiencing the worst drought in half a century and where 2021 is the third-driest in the past 100 years -- the water level in Lake Tahoe has dropped below the rim of the lake, meaning it can't deliver water into the Truckee River at its origin in Tahoe City. And early predictions of La Nina suggest the problems will worsen over the next year, not only threatening water supplies for the entire state but making us even more vulnerable to the devastating wildfires that have hit the state in recent years.

But the effects reach far beyond my little corner of the world. La Nina typically extends the hurricane season in the Atlantic, increases the likelihood of tornados in the Plains and South, spawns major storms across the northern part of the U.S. and much of Canada and suppresses rainfall from Northern California across much of the American South.

The Colorado River already can't supply all the water needed by those along its course -- Lake Mead, supplied by the river and held back by the Hoover Dam near Las Vegas, has dropped 150 feet in the last 20 years -- and no relief is in sight.

La Nina typically also means lower rainfall in East Africa, which has also been devastated by drought.

Living in what seems to have become the wildfire capital of the world, I keep hoping for relief, but it seems I'll have to buckle up for another rough stretch, as will much of the rest of the U.S. and some other parts of the world -- and as will those that insure all of us.

Stay safe.

Paul

The specialty insurance market is on the rise. In fact, Market.US projects that the global market, which was valued at $229.6 million in 2018, will increase at a compound annual growth rate of 5.7% from 2019 to 2028. This steady, upward trajectory is driven by demand for customized solutions to help combat increasingly unusual risks across industries, from the young ride-share industry to the mature commercial property market. And this growth has the potential to touch all players in the insurance continuum – from MGAs and MGUs to brokers and agents – who are looking to the specialty market to solve very specific challenges for industries and organizations across the country. 

According to Chad Levine, executive vice president and chief strategy officer for Aon Affinity, “There is an intense craving for customization and for partners who truly know what they’re doing. For agents, being able to zero in on a specific client risk and provide coverage for it is a serious leg up. In fact, consumers no longer hope you have what they want – they expect it. Specialization is driving every facet of our lives – including what coverage we choose to protect our most important investments.”

Built for speed and innovation

Specialty insurance companies are typically among the first to bring a solution to market when an insurance need emerges. Designed to be nimble and forward-thinking, specialty companies aren’t looking at 50 industries and trying to understand the impact of an event. They’re often laser-focused in one area, and that enables faster evolution and innovation. 

The internal structure of a specialty provider differs from a more traditional insurance company in a way that supports bringing a product to market quickly. While a traditional company might need to own every part of the policy lifecycle – from the sales and marketing to the product launch to claims management – specialty companies often assemble a team of experts from different organizations to design and deliver a product that’s in line with unique or emerging client needs in a shorter time.

You can see this process playing out in real time as insurance experts work together to address early questions in the fine art world about the potential for coverage to help protect non-fungible tokens (NFTs), which are digital assets designed to show one has unique ownership of a virtual item. This conversation really started to gain momentum in March 2021 when digital artist Beeple sold an NFT of his work for $69 million during a first-of-its-kind auction at Christie’s. It was a moment that demonstrated what collectors are willing to invest in digital art and the need to make sure that investment is adequately protected. And while the specialty insurance world hasn’t arrived at an answer to NFT coverage, it is exploring a range of options – from how it might adapt traditional fine art coverage for the digital world to how coverage from the financial institutions market might work – to meet the needs of this emerging group of clients. 

See also: State of the Insurance Marketplace

Four industries leading the specialty charge

While there are many drivers moving the needle in the world of specialty insurance, there are four industries that are really driving demand for unique products:

Healthcare

Beyond the daily risks involved with delivering patient care, the COVID-19 pandemic created risks and has accelerated the maturity of those once simply deemed as "emerging." As a result, as providers and practices navigate a more complex risk landscape, it is essential that they work with insurance specialists who understand these complexities and can deliver contemporary solutions for their clients. 

There are many forces that will continue to shape and reshape healthcare’s risk environment in the coming years, but four in particular stand out because of their projected scope and impact: changes in the delivery of care, particularly telehealth; the growth of the home healthcare industry; a rebound in the senior living industry; and the rise in demand for mental wellness services.

Mortgage Banking

Originally predicted to be a challenging year as consumers grappled with a spike in unemployment and an economic crash, 2020 saw a boom in the mortgage banking industry, which “had everything to do with low interest rates,” said Tom Delaney, president of Bankers Insurance Services (BIS), an Aon Programs solution. Across the board, Delaney notes a few key trends that will continue to propel insurance solutions for the industry forward, including the hot selling market, continued interest in refinancing and a new level of demand for mortgage impairment. 

Catastrophes

There’s a “great awakening” happening in catastrophe coverage. Commercial property owners are coming to understand their increased threat of flooding no matter where their property is located. Property owners typically arrive at this awakening because of increased access to data about the property’s true flood risk as well as personal experiences with flooding, a moment that usually brings about the understanding that flooding is the costliest catastrophe exposure for property owners, yet isn’t covered under a standard commercial property policy. 

And the awakening is in an early stage. “We’re beginning to see an increase of flood insurance policy purchases that aren’t lender-required, and this shift is introducing entirely new underwriting elements, such as using analytics to assess the risk of each individual property, to accommodate the request for higher limits and broader coverage,” said Casey Castagna, client service executive at Insurmark, a managing general underwriter that provides innovative property and casualty insurance products, an Aon Programs’ solution.

Nonprofit 

The pandemic intensified the need for the critical resources nonprofits provide as more people deal with serious issues like food insecurity, lack of access to educational resources and insufficient housing. Yet the pandemic also tested nonprofits, pushing them to their limits and exposing them to new risks as they seek to serve greater numbers with less funding, increased expenses and fewer volunteers.  

Beyond the myriad of risks, the rising price of insurance will continue to be a pain point for nonprofits – presenting insurance professionals with an opportunity to serve as a true counselor to their clients in this industry. These organizations are looking for protection options in the middle of a very fluid risk landscape and often don’t have the expertise to choose on their own. As risks continue to converge and press against each other, insurance agents will play a major role in serving as advisers to help their clients find alternate coverage solutions that can serve as an umbrella of protection. 

See also: 6 Cybersecurity Threats for Insurers

Conclusion 

The specialty insurance market shows no signs of letting up, providing tremendous opportunity for insurance professionals looking to expand or evolve their books of business. “There is – and will continue to be – a significant appetite for specialty products,” Levine said. “The last year certainly showed how important it is to be able to rely on expertise in the face of new challenges.”

Cyber breaches are more common than ever. Almost half of all global organizations will experience a data breach. The repercussions go beyond financial, as organizations suffering breaches can suffer reputational damage in the eyes of clients, donors, business partners and the general public.

For nonprofits, such repercussions can cause irreparable harm. Nonprofits tend to underestimate the cybercrime threat, believing they’re less attractive targets than major for-profit enterprises or external service providers performing IT-related functions.

Yet critical aspects of nonprofit business operations expose them to cyber risk, while often lacking the technology resources, infrastructure or staffing to manage it.

Consider the following:

• Since the onset of the COVID-19 pandemic, many employees are working remotely with home networks, creating greater risk as these networks may be unsecure
• Nonprofits have embraced cloud computing, software-as-a-service (SaaS) and warehousing data
• Criminals routinely hijack online payment systems like those used for nonprofit donations
• Third-party software used to manage and store donor CRM information can be hacked

The stakes have risen on PII

Nonprofit organizations solicit donations throughout the year, with the heaviest activity generally in the fourth quarter. They may store donor data containing personally identifiable information (PII), which are a tempting target for criminal elements. Even if an external party handles the data, the nonprofit is considered the owner and is liable for its safekeeping.

As many as 80% of all data breaches compromise personal identifiable information (PII), with the average cost of a breach $150 per record. These costs include civil liability, defense costs, regulatory fines and penalties and the cost of business interruption. A breach also raises immediate expenses, including the costs of investigation, consumer notification, credit monitoring and public relations.

Be a responsible, prudent steward in three steps

Nonprofit leaders are responsible for organizational assets entrusted to their care and are expected to exercise diligence and informed decision making. The following three steps will help a nonprofit organization start improving cybersecurity and reduce risk.

Step one: Assess exposure. Determine the approximate number of records the organization owns that contain protected information, and identify vulnerabilities in technology infrastructure, people and processes. Defenses include firewalls, antivirus protection, encryption and multifactor authentication, background screening, access restrictions, regular equipment inventories and physical security.

Step two: Build a team. Create a comprehensive information risk program, designating an employee or committee to champion cyber security. This team will help train employees and find ways to recognize, report and resolve vulnerabilities.

Step three: Determine insurance options. Explore the availability and cost of commercial risk transfer. Specialty insurance products have proliferated, offering coverage to address multiple risk exposures, from traditional information risk to media liability. Carriers will reward organizations with superior data risk management with better-than-average cyber insurance rates.

See also: COVID-19 Boosts Cyber Risks in U.S.

Transferring risk to cyber insurance

Traditional forms of insurance such as property, general liability, management liability and crime policies only provide fragmented protection against data breaches. In fact, mainstream underwriters are continually introducing new exclusions to shift the burden away from their policies and into specialty cyber solutions.

Cyber insurance is not one-size-fits all: Each policy must be tailored to the buyer’s needs, based on its unique risks and exposures. A robust cyber policy should cover the following:

• The services of a privacy attorney to help navigate legal responsibilities after a breach
• A forensic investigation to pinpoint the cause of a data breach
• Coverage of the cost to notify potentially affected parties and provide credit monitoring services, as well as the cost of hiring a public relations firm to minimize reputational damage
• Liability defense costs, claim settlements, judgments, regulatory fines and penalties
• Damage to the policyholder’s own IT network and digital assets, including ensuing business interruption

Cyber risk management starts with quantifying an organization’s risk and the costs to address it and continues through adopting a thoughtful, holistic strategy that includes transferring risk to insurance coverage when possible. It’s a process that will pay major dividends — even if a nonprofit may not seem like much of a target for cybercriminals.

Successful portfolio management is enabled by the breadth, reliability and granularity of data used. In our research to establish the portfolio management capabilities of top-performing underwriters, we found that the granularity of data drove the gap between top-quartile performance (outperformers) and bottom-quartile performance (emerging performers). 

The role of the underwriter is becoming ever more sophisticated, whether considering case-level, augmented underwriting or portfolio-traded, algorithmic underwriting. There are many challenges facing underwriters as they embark on building their portfolio management capabilities, but the journey starts with an appreciation of data assets. Of course, it is not just underwriters on this journey – but also brokers, cover holders, claims professionals, reinsurers, other capital providers and investors. To gain the greatest competitive advantage, the portfolio underwriter finds like-minded individuals in the value chain.

The level of sophistication will increase in line with the degree of atomization of the risk data. The more it can be broken down, the more opportunities for differentiation will present themselves. A topical example is how we as an industry support climate change transition. The ability to identify the various risk features as they pertain to transition risk enables underwriters to make more nuanced decisions, as well as assessing the impact of each decision on the wider portfolio. This also helps them demonstrate how their aggregate underwriting decisions are delivering their organization’s environment, social and governance (ESG) goals.

Fine-tuning the data machine

Insurers have often found it challenging to create a single data repository that brings together the various sources of internal data; Historical focus was mostly on quotes, policies and claims. These data are now routinely being supplemented with other sources – such as operational data and routing identifiers, as well as client or market data.

However, for the most data-savvy, the data universe is being expanded further with application programming interfaces (APIs), which provide access to multiple software and data sets. This allows organizations to access the huge amounts of additional data available, such as flood areas and other weather data, distance from emergency services and crime statistics. These all provide additional insights.

Although the range of data sources is important, there are other dimensions to consider. One is the length of an insurer’s data record, which can help provide robust and relevant historical perspectives. For example, examining World Trade Center data from 2001 and subsequent years could help an insurer understand the possible market reaction following a similarly large economic event. Likewise, harnessing data from previous natural catastrophes allows an insurer to see which classes were affected by certain types of events and the extent to which these classes were affected.

As found in our benchmarking research, organizations that achieved high levels of granularity in their portfolios went on to become outperformers. In fact, every single organization that was top quartile in terms of performance was also top quartile in terms of the granularity of data. This shows that if an insurer is able to get an appropriate grip on the granularity of their data assets, this facilitates outperformance in other areas.

In the future, we expect the quality of calculation and decision engines to become an important factor in performance. In much the same way that the expertise of commercial underwriters is recognized today as a market differentiator, we suggest the way underwriters interact with the calculation or decision engine will set organizations apart in years to come. 

A granular data asset inside the calculation engine allows the insurer to extrapolate performance at contract level, as well as run simulations at contract level to determine the optimum composition of the portfolio. The decision engine itself will also be important: Outperformance will depend on the combination of data assets with an appropriate algorithm and the skill with which this is deployed by underwriters in their trading models.

See also: Underwriting in the Digital Age

Delivering these portfolio insights to the “point of writing” sets each underwriting decision in context and determines whether it is accretive to the portfolio strategy.

The contract-level granularity can also be used to optimize capital, looking for correlations and diversification between contracts in a fast, easy way. This extends current approaches to capital optimization to add to the performance advantage on capital returns. Although common in classes that are currently considered data rich, extending the data asset makes these approaches applicable more broadly.

In this environment, an effective underwriter blends the ability to be data-driven, entrepreneurial and technology-proficient with the ability to build relationships and construct deals to drive profit.

Bridging the gap: underwriting and claims 

There is a lot to think about when contemplating a data approach for active portfolio management. It is useful to understand how far you can analyze your exposures – to what level of detail – and assess the loss history for similar exposure types across the portfolio. 

According to our benchmarking research, the ability of an organization to understand how its portfolios can be segmented (into geography, line of business, new business/renewal, etc.) was very different between the top and bottom performance quartiles in the study. This suggests that the successful atomization of the risk data can enhance performance across a wide range of portfolio management capabilities. 

The extent to which exposure and claims data are still not effectively combined and matched is surprising. It is striking how often, for example, cause codes are not collected to a sufficiently granular or consistent level to gain the most benefit from this asset. 

Closing the feedback loop between underwriting and claims, and how the claims team works with reserving and underwriting to help set the underwriting strategy, is another area of performance advantage. Often, these processes work well at a superficially high level, but a persistent feature of the emerging performer category is how often these communities were not aligned below that very high level.

Outperformers in our benchmarking survey further refined their portfolio optimization by rigorously including reserving data and pricing data, as well as quote data, to improve risk selection. By making available a credible, single data source for all functional areas to interrogate and use, outperformers can create a coherent portfolio management process, while maintaining a level of granularity appropriate for all users. This results in better decisions.

An organization must also be agile and versatile enough to adapt to the changing rating environment as the relative market importance of certain rating factors shifts. This agility could lead to an insurer being able to capitalize on their more advanced understanding of the market, either to carve out new opportunities by recognizing the changing needs of their insureds or to price the business more accurately to the underlying risk. 

Reports of the underwriter’s demise greatly exaggerated

We see underwriters remaining core, but their role developing to take account of a wider set of inputs. Central to that role will be more high-quality data points to inform the underwriting decision-making process and the need to continue to interpret, challenge and, critically, integrate them. The best underwriters are able to anticipate to changes in the market and by good data models will help to detect change quickly and calibrate a response.

Collection of high-quality data throughout the organization enables the underwriting decision to be traced through its stages, particularly the stages at which prices/terms are adjusted. This clear focus will either improve competitiveness or present opportunities for learning.

See also: Pressure to Innovate Shifts Priorities

The good news is that the collection of data, and their subsequent analysis, are becoming easier, quicker and available at lower cost. In turn, the asset and analyses become ever more valuable as our understanding of the data-rich world, and the tools available to infiltrate and unlock it, becomes more advanced.

An enlightened view on data will be the bedrock for insurers in achieving actionable and active portfolio management. The wave of innovation we are experiencing in the London Market reinforces our conviction that portfolio management will not just be used for its own sake, but also as a gateway capability as businesses evolve to an increasingly digital operating level. Given that good data granularity is already associated with outperformance, we expect the importance of data-driven actionable portfolio management to continue to grow.