Insurers need to innovate to stay relevant in a fast-moving commercial world. That is the message from DVS keynote speaker XL CEO Michael S. McGavick
What is the biggest single challenge facing risk management and the global insurance industry?
MM: The biggest challenge facing risk managers and the insurance industry has always been a true understanding of the risks being faced and the challenges we and our clients will face in the future. This has never been more important, or more difficult than it is right now. Risks are increasingly riskier and change is changing at a faster rate than ever before. The risk industry has to move just as fast.
Is innovation and forward thinking the most important aspect relating to the future of the sector?
MM: Failing to properly understand and stay apace with the change happening around us, and thereby finding our role in accelerating and shaping that change, is the biggest threat to the continued relevance of the industry. Innovation and forward thinking are at the root of meeting this challenge.
Why are insurers failing to innovate and adapt?
MM: As an industry, we naturally want the greatest understanding of the risks we face. This means we tend to wait for long data sets to develop and for there to be years of experience under our thumbs. But the increasing rate of change means waiting is no longer an option. It’s a natural tendency we have to fight.
What can be done to change that mindset?
MM: A large part of the change in mindset comes from really understanding our role in society. As an industry, we exist to help others comprehend and mitigate their risk. And when this function is most greatly performed, we have the ability to move society forward by letting others focus on their core missions, by freeing their mindshare from the risks they no longer have to consider on a daily basis. This is the truly important role we serve. And when we think about the work we do in this way, then the goal of understanding and staying ahead of change becomes the clear objective.
While there may not have been enough innovation in the insurance sector, some insurers have been changing their practices. What have been the most significant advances in insurance and risk innovation in recent years?
MM: Some of the advancements being made in cyber risk, new energy and business interruption coverage are very interesting. These coverages aren’t yet where they should be in terms of truly tackling the risks being faced by clients in these areas, but they show promise, and they get back to the core responsibility of helping others progress.
Is the insurance market in Germany a good example of a sophisticated and innovative model which other countries should follow?
MM: Generally, the German market is a very important one for XL and is sophisticated in many ways. The role of Germany’s risk managers has evolved to become broader due to challenges in the past and those that are being faced now. This is both a good and sensible development, as the country has many global companies which face complex risks. It’s up to the insurance industry and open dialogue with risk managers to transform unpredictable challenges into well-defined and tailor-made solutions to be drivers of innovation, and the German market should similarly react and respond. For the future, I personally see good potential for the German market, for XL and for other countries to follow.
Are there unique and specific economic dangers for insurers and risk managers working in the euro zone?
MM: The continuing economic turbulence in the Eurozone presents widespread challenges. It’s almost impossible for such a situation to be isolated; our companies are global, our clients are global, the risks are global. So it comes down to looking at each situation and having the right contingencies in place. And there are many euro zone specific scenarios that XL has been running for the past few months. But we, like everyone else, remain optimistic that the proper solutions will be enacted. But again, what is the opportunity here for the insurance industry to help stave off or mitigate a future situation in the future? How are we helping clients understand what is happening? That’s something we should be asking ourselves every day.
How do you envisage the insurance industry making enough necessary changes over the next 10 years, and what will be the consequences of staying put?
MM: The consequence of staying put is the failure to stay apace with change and the failure to stay relevant to our clients. Yes, the industry is up to the challenge. XL’s own history, helping to create the insurance market in Bermuda, is tangible evidence of how the industry has risen to the occasion in the past. The opportunities now are not going to be as clear or as singular, but I remain absolutely optimistic about what we will achieve.
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