IBUK Charles Taylor by Key Media

INSURANCE BUSINESS UK PRESENTS…

THE YEAR IN INSURANCE In association with Charles Taylor

TECHNICALLY INSPIRING

Charles Taylor delivers better results for the world of global insurance. It is our combination of claims expertise, technology services and insurance management that make us unique.

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SPECIAL REPORT

THE YEAR IN INSURANCE

FOREWORD What has 2021 meant for the UK insurance industry? After the tumult of 2020, you might be forgiven for wondering how 2021 could ever hope to make an impact on the psyche, operations and strategic direction of the insurance market. But the last 12 months have brought their own distinct market shifts, reflecting changing customer behaviours and expectations, as well as the technological innovations that have been welcomed by the wider industry. In recognition of the wide-ranging twists and turns that 2021 has brought for the

insurance market, Insurance Business UK has teamed up with Charles Taylor to explore the key themes of the last 12 months and whether they can be expected to continue to resonate in the New Year. Experts from Charles Taylor came together for the report to grapple with the most pressing questions and explore their far-reaching implications for the wider industry. The five key questions explored were: How did 2021 measure up to 2020 in terms of disruption? What are some of the standout changes or surprises you have seen across the sector this last year? How has your team worked to mitigate the key challenges faced by your clients this year?

How has your team sought to empower clients to take advantage of new opportunities springing up across the industry? Do you think the key market shifts seen in 2021 will continue to be areas of focus in 2022? Through the insight of Charles Taylor’s expert team, this report aims to provide the reader with a heightened view of the challenges and opportunities that await the insurance market as it heads into the uncharted waters of 2022.

Mia Wallace News editor Insurance Business UK

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SPECIAL REPORT

THE YEAR IN INSURANCE Question 1

How did 2021 measure up to 2020 in terms of disruption? Joanne Butler Charles Taylor InsureTech Last year certainly demanded that we all urgently implement huge changes in our businesses, ways of working and even our home lives. Overnight people’s daily routines were thrown out, but necessity is the mother of invention and most of us, and most organisations I’ve spoken to in the industry, were pleasantly surprised at how quickly they were able to adapt. A lot of the heavy lifting was therefore completed in 2020 and as this year started, I think many found themselves in a good position to continue the huge changes that we had previously put in place. However, nothing stays still, of course, and 2021 brought new challenges – including the support needed to enable hybrid working as offices opened up. We have had to deal with a whole new set of concerns around the supply chain, with fuel and lorry driver shortages still affecting

many areas and resulting in long customer waits for some claim resolutions due to delays in replacements. On top of this, businesses are now navigating a hard market with changing interest rates, so I have a feeling we are not out of the harder times just yet.

Laetitia Fouquet Charles Taylor Adjusting In the rush to work remotely, not all companies reassessed their IT security, adapted their internal policies, vetted their service providers, or considered added security for remote access. Additionally, attackers targeted employees working remotely in social engineering campaigns. Amid the successive lockdowns, businesses had to deal with cyberattacks affecting their already disrupted operations. While the number of attacks had been on the increase in the last few years, the initial focus was on the business interruption claims, cancellation of events, etc. as a result of COVID. Following on from a year in which ransomware and social engineering had already become prominent, 2021 saw more sophisticated attacks leading to increased costs and business interruption losses linked

MEET OUR PANEL OF EXPERTS Joanne Butler Head of Product Marketing and Pre Sales Charles Taylor InsureTech As part of the Charles Taylor InsureTech (CTI) product tower, Joanne heads up two areas of the business: product marketing and pre-sales. In addition, Joanne leads the CTI women in tech forum, speaks at and attends D&I and product events. She also coaches and manage graduates as part of the CTI graduate programme.

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Laetitia Fouquet Head of Specialty Lines Charles Taylor Adjusting Laetitia joined the cyber team as an incident manager in 2014 and helped develop the incident response platform including vetting panel vendors and training incident managers. She became global head of cyber in 2019, overseeing a team of 55+ trained adjusters globally who are regularly instructed in complex and multi-jurisdiction claims including ransomware attacks and third-party claims for loss of data and now also co-leads specialty lines globally with Nicholas la Stella.

Mike Holley Senior Consultant Trade Credit Charles Taylor Adjusting Mike brings over 35 years’ experience in the trade credit & political risk sector, having started his political risk and trade credit career at ECGD, in claims, in the early 1980s. He has had a variety of roles since, in underwriting, product development, as business unit director and more recently as founder and CEO of Trade Insure Equinox Global Limited. Mike has a specialism in trade and supply chain finance.

to cyberattacks. With the increase in claims numbers and value, we saw the market reassessing its exposure. One key area which we see evolving is the use of tools to better assess insurers’ exposure, key pre-loss discussions and audits.

Mike Holley Charles Taylor Adjusting It is hard to imagine a greater contrast with 2020. Far from turmoil, 2021 was the year nothing much happened. It started with a degree of political stability returning to the relationship between the US and its allies, and continued with huge government supports to businesses all over the world, meaning businesses were in a state of suspended animation. From the perspective of credit and political risk insurers, it was like being becalmed at sea, with an unprecedentedly low level of claims that has not been seen in living memory. Meanwhile, we all adapted perfectly, firstly to remote working, then hybrid working, realising some efficiency gains along the way.

Simon Cook Charles Taylor 2021 has still undoubtedly been a challenge. However, there are clear signs of recovery and there is no doubt that the insurance industry has learned and adapted very well to a new way of business life.

Simon Cook Head of Specialist Investigation Services Charles Taylor Simon has over 20 years’ experience in the insurance industry, most of which has been in the counter fraud arena. He is a subject matter expert on global field investigations and a regular contributor to media stories about insurance fraud, including taking part in eight series of BBC 1’s ‘Claimed and Shamed’ fraud documentary series.

Question 2

What are some of the standout changes or surprises you have seen across the sector this last year? Joanne Butler Charles Taylor InsureTech Cyber ransom demands have increased, and the attacks are more sophisticated leading to higher recovery costs and longer

CYBER RANSOM STATISTICS FOR 2021 1

Average ransomware demands rose 518% in H1 2021, compared to 2020

The average ransom demand is H1 2021 stood at $5.3 million

The highest demand made of a single victim in H1 2021 was $50 million

The average payment in 2021 was $570,000 Source: https://www.paloaltonetworks.com/blog/2021/08/ransomware-crisis/

interruptions. While we saw generally less high-profile data breaches, we also witnessed attackers carrying out double extortions (asking for payment to provide decryption tools and then threatening to release data online if payment was not made) and new ransomware groups emerging. ‘As a result, we have seen some insurers’ and reinsurers’ exposure increasing and in 2021 we saw some insurers pulling out of the cyber market, more sub-limits or reductions being imposed for incidents where ransomware was the cause, a stricter application of policy conditions, reduced capacity and increased premiums or retentions. Insurers also became more wary of paying/reimbursing ransom demands due to regulatory obligations and the market is questioning whether this should still be covered. We see this as a turning point, and we expect this to continue to evolve in 2022. We have also seen reduced capacity and appetite as a problem over the last six-nine months. Capacity is not keeping pace with the increased demand because people are wary of being caught with high-value cyber claims. Insurers are worried about paying high losses and we have seen insurers only going for second- or third-layer exposure or considering co-insurance. There seems to be an increased demand for cover, and at higher levels. Some insureds are clearly underinsured as well now, having underestimated their exposure.

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THE YEAR IN INSURANCE Mike Holley Charles Taylor Adjusting Digitalisation and remote working is here to stay. The efficiency gains of the new digital way of working have prove to be astonishing. In the second half of the year, we have been able to recombine these gains with face-to-face meetings and conferences as well. The hybrid conference works well and looks like it is here to stay, as does the webinar. Meanwhile, the process of digitisation has taken a quantum leap forward. Insurers, brokers, banks, customers are increasingly connecting electronically, meaning that data does not need to be rekeyed. This could have some interesting consequences for the structure of the industry, as the various players battle to be the central ‘digital platform’ that everyone uses.

Simon Cook Charles Taylor The anticipated impact of insurance fraud because of COVID-19 in 2020 and 2021 has not been as prevalent as had been predicted by some industry analysts. It is our belief that if a COVID-19 fraud spike is to occur, it is more likely we still see this in 2022 based on potential redundancies and the financial impact of the removal of government subsidies.

Joanne Butler Charles Taylor InsureTech Insureds have been demanding more and more value from their insurers for some time, but this has been accelerated due to COVID. Of course, business interruption and travel are some of the areas that have seen the most disruption in this period. Overall, our customers expect a seamless online experience from queries, purchasing and claims across the board and are getting less patient with the process. This has led to a rise in the online service insurers and brokers are providing, and a fall in person-to-person customer experience and

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advice. This is without a doubt what customers are looking for insurers to provide but, of course, it can be a good and a bad thing. While the transaction is quicker and the customer can self-serve, their understanding of the cover may be impacted, which of course does not become apparent until claim time, leaving the customer disappointed. Question 3

How has your team worked to mitigate the key challenges faced by your clients this year? Mike Holley Charles Taylor Adjusting Underwriters in the credit and political risk space have found it challenging to project forward. Much risk information is based on financial statements and economic data for 2020, which is almost meaningless as an indicator of what will happen in 2022 and beyond. The same applies to central banks who are somewhat flying blind in their management of economies, given that there is no historic precedent for the current situation. Predicting next year’s loss ratios is, therefore,

harder than ever. Meanwhile, some underwriters have been struggling with very large-scale fraud cases – fraud often becomes manifest when the environment is unpredictable, and 2020/21 has certainly been that. The work out of these situations will likely drag on for many years, being an unwelcome distraction for those unlucky enough to be involved. We have had three significant players withdrawing from the credit and political risk market in 2021. This is unusual and unwelcome. It is to be hoped that new entrants will replace them over the coming months.

Simon Cook Charles Taylor Due to COVID-19 lockdowns and social distancing measures, the industry has been unable to visit customers’ homes and properties to take statements/discuss the incident in person, etc. Because of this we have deployed a more intelligence-led approach to our investigation response and introduced/ designed a new award-winning investigative social media and open-source claims validation technology – Discovery by Charles Taylor. We’ve also utilised video and telephone interviewing a lot more. As a result of this proactive approach, we’ve actually increased

THE MOST COMMON REASONS FOR NOT REPORTING FRAUD:

45%

didn’t know who to report it to

29%

didn’t know they should report it

29%

didn’t think it would be investigated

21%

couldn’t be bothered

correct decision so as not to leave yourself with the same problem 10 or 15 years into the future? Charles Taylor has a full suite of offerings that can offer customers different approaches to these very problems. Where customers wish to leverage existing IT, we are able to integrate modules from any of our solutions to complement existing technology landscapes. Customers are therefore able to implement as little or as much of this technology as they need to in order to fulfil their business goals. This gives them the ability to evolve their systems over time without very large upfront investment. Where customers wish to replace technology in larger programmes, we are also able to support them. Sometimes customers have found using a mixture of these approaches delivers the business value they need quicker.

Source: The Aviva Fraud Report 2021

fraud savings on behalf of our customers/ clients during 2021.

Joanne Butler Charles Taylor InsureTech Innovating in a hard market is a topic that a lot of our customers are talking about, particularly around having the right, key people involved in such programmes when they are already more than busy with their current role. Our customers talked about how they have knitted innovation into their culture, by placing it in people’s objectives and setting aside time for people to work on innovation programmes specifically. This is coupled with the need to really address long term plans around legacy systems - another pervasive theme. In many cases, our customers, although hampered by them, need to retain legacy systems for multiple reasons. This could be that they contain crucial data and logic that is quite frankly the competitive edge the company has currently, or simply that it is just too big an investment money-wise and time-wise to feasibly replace them. Many alternative solutions exist, but with the world of technology changing so rapidly, how can you be sure you are making the

Laetitia Fouquet Charles Taylor Adjusting We saw insureds trying to keep details of the incident to a strictly “needs to know” basis and this, in turn, led to a lack of transparency and prior consent not being obtained. It is important for insurers and adjusters to follow the claim closely so that when the time comes to assess losses, context has already been provided around the involvement of vendors and for the business interruption. It is even

more important in complex claims and, given that most of the interaction had to be done remotely, good communication was key. Unfortunately, we have seen quite a few claims where the insureds contacted insurers early to obtain a view on coverage but went silent for months and only presented a claim when the issues had been resolved. This created difficult discussions. We have therefore worked with insurers appointing us to be involved as early as possible in the process, considering both the technical issues and their possible financial consequences, while working well with the insured, the broker and the insurers. Question 4

How has your team sought to empower clients to take advantage of new opportunities springing up across the industry? Simon Cook Charles Taylor We realised that there was a historical, unethical approach to how companies can conduct social media and open-source intelligence investigations. Therefore, we acted quickly by designing and launching a new social media

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SPECIAL REPORT

THE YEAR IN INSURANCE

and open-source investigation tool, Discovery by Charles Taylor. The product was launched within five months of design and is now available in every English and Spanish speaking country. We’ve deployed Discovery by Charles Taylor in multiple global business units to help our clients combat claims fraud.

Joanne Butler Charles Taylor InsureTech The IT department inside insurers and brokers is changing. IT teams are discovering how valuable low code and no code technology is for creating front end customer and internal experiences. This is an important shift as it allows IT teams to focus more effort on maintaining the backoffice applications that often contain business-critical data and competitive advantage logic. Charles Taylor understands this challenge completely and places the power in the IT team’s hands with our ecosystem of front office and middle office offerings that allow sophisticated configuration through an easy-to-use pick and click interface.

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Laetitia Fouquet Charles Taylor Adjusting Cyber policies have been evolving and 2020 saw the end of “silent cyber”, but we also saw more cross between cyber and other lines such as K&R, PI, etc. For some sectors of the industry, this is not an issue but for others, some cyber policies versions seemed no longer adapted to their needs. One key point though has been the emergence of more focused policies, such as marine cyber or superyacht cyber, with cyber policies adapted to the sector of the industry they are destined to cover. This we see as an opportunity to make sure that the cover is more attuned to the need of the insured, their potential vulnerabilities and key exposures.

Mike Holley Charles Taylor Adjusting In 2021 it has perhaps been easier than ever before to work with Charles Taylor colleagues in other countries. These days the

communication looks and feels the same whether the colleague is on the next floor or the other side of the world. For our team, it has enabled us to reach the Canadian and Malaysian markets via webinar, while we can provide a joined-up multi-country service to our clients more effortlessly than ever before. It has also helped us develop our new digital fraud detection product, ‘Discovery by Charles Taylor’ a social media and opensource claims validation tool together with our fraud team. Question 5

Do you think the key market shifts seen in 2021 will continue to be areas of focus in 2022? Joanne Butler Charles Taylor InsureTech Leveraging data has been a pervasive theme for some years now with our customers talking about the ways they have found to use their existing data to help improve

customer service and underwriting particularly. However, there is much work still to be done in this area, for example establishing data standards, helping to improve the way we transmit data efficiently between different systems and between different organisations transacting business. Improving data standards and data quality then further enables us to leverage technologies, such as machine learning and artificial intelligence, which again are becoming more pervasive across the insurance lifecycle in improving efficiency. Enriching existing data sources further with external data feeds, for example geo data, is still very manual in a lot of areas. Overall, looking after and leveraging our data makes everything ultimately easier.

Laetitia Fouquet Charles Taylor Adjusting There were also a lot of strategic moves on the market with underwriters and claims managers moving to new positions and new MGAs appearing where they felt they could continue developing this line. The market has had to review its exposure generally and we will have to see how the cyber market evolves in the next few years.

Mike Holley Charles Taylor Adjusting Digitisation will accelerate and this is likely to change the structure of the industry over time. The pre-COVID way of doing business in Lloyd’s, for example, already looks like a remote memory. The way we use London is changing too, with many people settling into a Tuesday to Thursday routine, with the office days being used for lots of meetings, lunches, dinners and coffees. On the underwriting and claims side, we can expect some turbulence. Although COVID will not have gone away, business is settling into a ‘new normal’, and that means

the becalmed sea will fade as governments withdraw support and allow companies to stand on their own feet again. We often say ‘the calm before the storm’, and we shouldn’t be surprised if 2022 follows this pattern.

Simon Cook Charles Taylor It is very difficult to predict what will happen in the insurance industry in 2022 given the current complexities surrounding new strains of COVID-19. It is obviously hoped that the country and the insurance industry can return to some sense of normality in the near future. However, if further lockdowns and travel restrictions are put in place, the industry is better prepared than ever to work remotely while progressing its strategic ambition to digitalise claims and customer services processes.

AI USE CASES - THE FUTURE OF CLAIMS?

41% of EMEA insurers have invested in natural language processing

37% of EMEA insurers have invested in anti-fraud systems

33% of EMEA insurers have invested in image recognition or geospatial analysis Source: https://www.charlestaylor.com/en/news/news-post/industry-trust-in-ai-models-essentialto-the-future-of-claim/