Digitisation has changed our world considerably: we have moved from predominantly tangible industrial products to more intangible assets. This has consequences for insurance as customers are also demanding solutions for these intangible risks. Today, large parts of economic value are created through digitisation.
Insurance Business spoke with Stefan Feldmann (pictured), managing director at HDI Global, to learn more about digitisation and its facets.
“Estimates show that today more than 80% of global corporate assets are intangible, such as internet platforms, data and intellectual property,” explained Feldmann. “In 1975, it was less than 20%. Some of the most valuable and successful companies are technology companies such as Apple, Alphabet, Microsoft and Amazon.”
With changes in the nature of assets also come changes in the nature of risk. While flood and fire remain a risk, cyberattacks and data loss also become pressing concerns for individuals. So, how has the insurance industry reacted to these new types of challenges?
“Companies now expect industrial insurers to offer insurance solutions for these intangible risks and the industry has been developing such solutions for several years,” explained Feldmann. One example is cyber insurance.
“These policies usually combine the cover of first-party damage as well as third-party damage - they also protect against business interruption and financial loss from cyber incidents and they offer support in crisis and risk management,” he explained.
In terms of solution curation, a problem persists is that some intangible risks and assets are harder to measure and to insure than others. One that is difficult to assess is a company’s reputation.
“This is something that is really hard to measure,” said Feldmann. “How can you determine how much it has changed due to a certain event? How can we quantify how much damage might have been done? This is a risk that is very difficult to design an insurance solution for.”
The development of solutions takes time and the process is made harder by a lack of existing data. But movements are being made.
“There are ways to overcome the hurdle of developing new insurance products for new types of risk without historical data,” said Feldmann. “The ‘new’ risk that needs to be insured is assessed by experts and compared to known, similar risks.” Feldmann admitted though that if there are not enough insurers and reinsurers to share a risk, such solutions don’t progress.
Despite the obstacles, Feldmann is confident that the industrial insurance market in Australia will continue to develop over time.
“The driving force for further progress is the steadily growing use of modern data analysis, so called advanced analytics,” he said. “In my opinion, we will see a transformation from insurance companies to data and analytics-based organisations in the medium to long term. The more efficient the insurance industry becomes in evaluating complex data, the easier it will be for us to deal with abstract risks.”