Hybrid risk management

Hybrid risk management

BY ROBERT CHANON

Over a decade of changes in the French insurance market has created the need for a new approach to risk management which has implications beyond the sector, argues the third and final reflection

Before 2010, policyholders were not seen as clients, and few client loyalty schemes existed. The client acquisition model assumed that new entrants would take up the same insurer as their parents and would keep the same insurer for life.

In 2010, a typical portfolio churn was about 5 per cent. Online comparison sites emerged with digitalisation (and increased internet access) to change this trend, resulting in a better-informed consumer and a more competitive market. General insurance policies were traditionally contracted for one firm year. New laws allowed policyholders to cancel policies at any time. Portfolio churn increased to such an extent that many insurers were forced to create loyalty schemes.

Multi-channel

Digitalisation also saw the appearance of multi-channel distribution and new ondemand insurance services. This introduced new flexibility in policy interpretation. Insurers would no longer refuse claims, and they would allow customers to access services or benefits in the event of a claim. For example, if the insured is partially covered, the insurer would often propose that they could make a partial payment towards access to the service or benefit. This represented a fundamental paradigm shift for insurers because they had to act in favour of the client and assist them in their claims.

Traditional policyholders were turned into clients overnight, forcing better conduct in the industry. Some insurers have created selfhelp mini-communities and forums in the same spirit as the friendly societies and corporations of the Middle Ages.

Tied agents

Digitalisation has also affected France’s traditional tied agency networks; footfall has decreased dramatically as online offerings have progressed. In 2010, claims would be processed in an agency. By 2020, centralised claims platforms had become more dominant.

Search engines and social media provide multi-channel sales leads with 100 per cent online processing. Insurtechs will further disrupt the physical agency network, not least because upcoming technological innovations will make insurance more accessible for the consumer. This is only the start.

At the end of 1990, there were over 300 mutual insurers in France. Since 2010, the good intentions of Solvency II have had unwanted effects. The new capital constraints forced many mutuals to close or find a suitable group that could shoulder the new Solvency II capital requirements.

Risk management

By 2020, risk management teams within these groups had become cost-conscious, centralised business partners to mutuals, losing vital experience in risk and actuarial management.

As our profession becomes increasingly technological and data-driven, more models are used for analysis. This is creating a new type of hybrid risk manager who needs to acquire new skills to deliver sound ERM analysis and judgment. Without internal and external support, the future risk manager will find it difficult to provide insight to decision-makers. The key to the success of future risk teams is adequate training, budgeting and resourcing.

Robert Chanon, CFIRM, is interim ERM director and climate change lead at Aviva.