The Game Is Afoot!

A confluence of events suggests that 2023 will mark a big move toward a "predict and prevent" model for insurers, and away from the traditional "repair and replace." 

Business Gamer

In the first talk I gave to an insurance audience, some nine years ago, I projected out a decade and confidently declared, "He who sells the least insurance wins." As a newcomer to the insurance world at that point, I believed that no one WANTED to buy insurance. People bought insurance grudgingly, because it filled a need or, in many cases, because they were required to. I believed that what people did want to buy was protection, and, as someone with a long background in innovation and in writing about digital technology, I believed that insurers could use their vast stores of data and hard-earned expertise to reduce the risks people faced -- and make a lot of money doing so -- rather than wait for a loss to occur and then make people whole. 

What's become known as "predict and prevent," as opposed to the traditional "repair and replace" model for insurers, was hardly original with me, and I'm just one of many who have increasingly leaned into the model. But I'm struck by a recent confluence of events. The Institutes is developing a podcast series on "predict and prevent," in which CEO Pete Miller will interview thought leaders on the topic. (You'll be hearing much more about this from me shortly, as well as from other arms of The Institutes.) And annual reports on the industry from both Bain and McKinsey in the past week have singled out "predict and prevent" as a major theme for 2023. 

As Sherlock Holmes would say, "The game is afoot."

I'll have to wait until it is launched to provide details on the podcast series at The Institutes, which is being honchoed by ITL's old friend Paul Winston, by Matthew Kahn of the Risk & Insurance Group and, of course, by Pete Miller. In the meantime, I'll steer you toward some smart reading on the subject, including the Bain and McKinsey reports.

For the Bain report, the firm surveyed nearly 30,000 customers in 14 countries and found, according to a summary, that consumers "overwhelmingly want risk prevention and mitigation services from their insurers. In Brazil, 97% of survey respondents indicated interest in risk prevention, as well as 81% of respondents from Japan. Additionally, more than 40% of millennials are willing and interested in paying for life insurance that includes risk prevention."

The McKinsey report says, "Commercial carriers must expand their offerings beyond risk transfer to services that mitigate or prevent risks. For example, in cyber, the most engaged commercial carriers help clients reduce cyber threats and improve risk selection by providing threat intelligence, data center diversification, consulting, and employee training. Many commercial carriers also partner with cybersecurity firms to offer end-point protection or multifactor authentication. Insurtechs, in particular, can leverage this opportunity to offer cyber protection products as a 'vaccine' against risks—in other words, the more that individual companies protect against cyber risks, the lower the risk exposure for the industry as a whole....

"Similar mitigation and prevention solutions can help clients become more resilient to NatCat risks. For example, leading commercial carriers have been working with governments and regulators to ensure that building codes are fit for purpose and adequately address local catastrophe risks. In addition, commercial carriers can help manage clients’ exposure by providing extreme weather warnings (such as for floods or hail) or by advising large fleet owners (such as marine and aviation clients) to relocate their fleets based on upcoming extreme weather events. Commercial carriers can also leverage their expertise to help clients develop supply chain resilience or navigate the jungle of environmental, social, and governance (ESG) and enterprise risk management (ERM) frameworks, as well as supplier certificates."

(The McKinsey report includes a number of other striking observations, including about how much specialist carriers have outperformed their more diversified peers and about the opportunities being created by the transition to net-zero. I give the report a hard read every year.)

Beyond the Bain and McKinsey reports, I recommend an interview I did late last year with Sean Ringsted, an executive vice president at Chubb, who has been a driver of "predict and prevent" for some time. Among other smart things, he said: 

"You can go beyond the 'repair and replace' model for insurance and get to 'predict and prevent' because you have so much information available to you in real time, not just after the fact. When you think about fire, everybody knows the value of smoke alarms. Now think about water. You can use sensors to detect and manage water leaks in the same way. And they’re a major contributor of loss rate in buildings, both in frequency and in severity. It’s not just the cost, either. It’s all the headaches that go along with water damage that can be prevented. You don’t have to get new carpet, worry about mold, deal with the loss of business income. The value proposition is much less about claim payment and is much more service-driven, to prevent the loss.

"You're starting to see applications for worksites. IoT devices can improve safety for workers on degree of bend and lifting heavy objects. Think about sensitive or valuable machinery that you can monitor for temperature and vibration and make sure they’re well-functioning.

"Just the ability to monitor temperature fluctuations and humidity can have a significant bearing on the value of something such as marine cargo or fine art."

If you've stuck with me this far, you might also be interested in a "future history" of insurance that I wrote a year and a half ago for Six Things, where I laid out a vision for where "predict and prevent" could take us by the end of the decade.

I may have been too optimistic nine years ago about how quickly we could get to "predict and prevent." I'm usually too optimistic, even though I allow for the fact that I'm too optimistic. But I'm excited to see the progress.



P.S. Yes, I know that the line, "the game is afoot," originated with Shakespeare, not Arthur Conan Doyle, but a lot more people have read Sherlock Holmes stories than have read Henry IV, Part 1, and even more have seen the various TV series and movies where Holmes used the line.