For over 200 years, the insurance industry has understood the benefits of risk management in reducing and controlling exposure. However, the traditional way of improving risks through site surveys, brings with it a fundamental problem - it cannot deliver risk management to everyone...
THE CONCEPT of risk management in general insurance started to take shape with the rise of fire insurance. The Great Fire of London back in 1666 had a lasting impact, leading to the formation of early insurance companies like the Sun Fire Office. Industrialisation brought new risks and insurers started carrying out basic surveys to assess risks associated with factories, railways, and shipping.
By the early 20th Century, the insurance industry began to standardise risk assessments. Insurers employed engineers and surveyors to inspect properties and industrial sites. By the mid-20th Century, the Great Depression and World War II had led to advancements in risk management practices and the concept of comprehensive risk surveys became more prevalent. Later standardised survey forms and procedures were introduced and the traditional site surveys we still use today began to take shape. Site surveys continue to dominate the landscape well into the 21st Century.
However, the ability to deploy site surveys across the industry is severely curtailed by the availability of human resource and its associated costs. So, while risk management interventions driven by site surveyors can have a significant impact on insurers' Combined Operating Ratios (COR) by mitigating claims, the benefits are limited. In fact, it’s tip-of-the-iceburg stuff, with only around 2% of any insured risk ever receiving guidance and improvements following a risk survey.
The solution?
So, what is the solution? What about the 98%? In September 2019, PwC published its report ‘The Future of Risk - The insurance Risk Function of the future’ which hinted at the need for general insurance risk management to incorporate assisted, augmented and autonomous intelligence. To keep things simple PwC basically said that when it came to risk management, the insurance industry needed to supplement human expertise with data, machine learning and AI resources in order to be fit for the 21st Century.
At RiskSTOP, we became obsessed with this idea, not least because we could see it opened up a possibility to extend the availability of risk management beyond a tiny 2% of policyholders to everyone! Not only could this help insurers dramatically improve COR, but would enable insurers and brokers to enhance reputation, customer relations and ensure positive customer outcomes, by adding value through widespread risk management support.
We also spotted a connection between what PwC was envisioning for general insurance risk management and how the insurance industry segments its customers.
Exposure-Appropriate Risk Management
Insurers and brokers tend to place customers within three distinct categories – Complex, Mid-Market and Digital. These segments are fairly self-explanatory, but generally they’re linked to levels of exposure. Complex risks tend to be high-severity and /or high-frequency in nature, but don't exist in large volumes. Mid-market risks tend to offer lower severity of exposure, but there are more of them. Those within the digital segment feature lower individual exposure, being made up mainly of SME or more straightforward risks, but they’re high in volume.
As you would expect, it is the more complex risks where risk management resource is most often deployed, but not exclusively. Some mid-market risks also benefit from occasional site surveys. Digital risks, not so much, but site surveys do happen every now and then!
However, site-surveys seem most ‘appropriate’ for complex risks. In-order to hazard-spot and paint a reliable picture of a risk for underwriters and brokers, it remains clear that expert-led human assessment, which takes place face-to-face and on-site, is still required. However, do we need to send a surveyor to mid-market and digital risks? And could we do far more risk management if we could find a different way?
What’s appropriate for the rest?
At RiskSTOP, we believe the key to delivering ‘Risk Management for Everyone’ is working with data and digital resources and where appropriate, offering either automated risk guidance or hybrid (human and data combined) risk assessment and reporting.
We see the hybrid model working well with Mid-Market risks. Our vision here is one where rather than sending a surveyor to the risk, our team of Risk Management Advisors pulls together a range of digital sources, including our own unique risk data gathered from tens of thousands of risk management site surveys and across all kinds of classes of business.
Our team will then carry out a ‘desktop’ assessment of the risk, discussing aspects remotely with the policyholder and producing a risk report, with risk requirements.
We are already building a range of these desktop-based ‘Rapid Risk Management’ (RRM) services, focusing initially on emerging and challenging risk issues, such as vacant properties, thatched buildings and risks featuring solar panels, as well as several classes of business including retail stores, offices, hotels and residential flats. Several RRM services are already available to insurers and brokers to order through our website. Rapid assessments can be carried out in a fraction of the time and cost of a site survey.
Automated reports
Of course, the biggest challenge facing the insurance industry is how to deliver risk management that is appropriate across the high-volume Digital segment.
Here, we believe the key is to provide automated, personalised risk reports, delivered mainly through brokers to their clients, and in a way that not only supports risk improvement, but also enhances broker customer relations. We need to provide a simple tool to brokers, which allows them to guide clients on a journey of risk improvement. Ideally, this would be delivered without waiting times and at a cost that makes it accessible to all!
Using our unique risk data, RiskSTOP is already in a position to identify the risks different classes are more likely to face and to offer guidance related to these risks. We can also identify key emerging and challenging risks and bundle all of this information together into a report that requires minimal online input and which brokers can access instantly and share with their clients.
In our commitment to enhancing the safety and security of individuals and businesses in the UK, we have decided to provide this online tool to brokers and insurers free-of-charge. We believe that 'Instant Risk Guidance' (IRG) is a revolutionary tool that will evolve and grow through industry cooperation. Brokers and insurers can access IRG through our website here. Unlimited and instant risk reports are now accessible to the insurance sector and its clients!
At RiskSTOP, we firmly believe that data-driven, hybrid and human expert-led solutions can change the risk management landscape, bringing its benefits to all in a way that is fit for the 21st Century.
Please join us in developing Exposure-Appropriate Risk Management and help deliver Risk Management for Everyone. Find out more at www.riskstop.co.uk
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