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Exposing insurance's biggest myth

Exposing insurance's biggest myth | Insurance Business UK

Exposing insurance

“If the doors of perception were cleansed, everything would appear to man as it is, infinite.” William Blake’s treatise on the nature of perspective and reality offers the same message as the sticker found in a new car - “objects in the rear-view mirror may appear closer than they are.” Everything is a matter of perspective, including, according to Guidewire Software’s chief innovation officer Paul Mang (pictured), the often-derided state of innovation in insurance.

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A significant part of finding opportunities for innovation is about having a thesis regarding the way the world is operating and understanding the role that insurance plays within that. There is no doubt, he said, that insurance is the resilience business – resilience for society, for households, for individuals. Insurance is about transferring risk, but also helping to manage risk, and goes beyond just being ready and willing to pay a claim.

“Customers of insurance entities are expecting them to have resilience built-in, and that there is some source of expertise and advice available,” he said. “The world is changing around us and all sorts of activities we never imagined would be digital are moving in that direction. And so, we need to look forward and do some extrapolating on what’s happening.

“I think, as an industry, the insurance industry has done a marvellous job over 400 years of really being innovative. When the world entered global trade and the shipping trade, that created all sorts of problems, risk transfer being one of them. And it was the innovation of the original underwriting groups, the syndicates, that allowed international trade, not just a ship going somewhere, which was going on for 1,000 years, but in a mercantile system.”

There have been many cases of innovation happening since then, Mang said, and insurance has been right in the middle of them. It’s essential, therefore, to assess the level of innovation within the industry with an eye to the past and the future as well as the present. Assessing the full breadth of what the insurance industry has achieved reveals examples such as the above, where risk transfer for ships allowed them to be used for trade where otherwise they might only have been used for leisure or fishing, or maybe warfare.

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Look at examples such as the automobile, he said - these tremendous internal combustion engines, which represented an amazing innovation that changed the world in many ways. Without risk transfer, however, it wouldn’t matter who you were or how wealthy you were, society wouldn’t allow you to just drive a two-tonne vehicle around, putting yourself and everyone around you at risk.

“The view of the industry being slow-moving or not innovative may apply if you have a very recent overview of the industry, but I look at the industry in the context of its history and the purpose it has served,” he said. “It was the first sector to really invest in computers. If you went back not that long ago and asked, ‘what’s the most innovative industry?’, you’d say, ‘it seems that one industry is purchasing all these automation machines we call computers, they must be the most innovative, who else is doing that?’ Now today, those companies are seen to have very old infrastructure, but it’s a reflection of that early investment.”

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Mang, whose role at Guidewire is to help his clients innovate in relevant and advantageous ways, noted that it is important not just to focus on the many positive aspects of innovation. Anything new has a second side to it that is more uncertain and often a little dangerous, he said, whether that’s social media which many initially only saw the positives of and are now realising its flaws, or fire which would have seemed only beneficial until somebody accidentally burned down their hut. The same goes for autonomous vehicles, the concept of which is terrific but could potentially result in a high-severity outcome if something goes wrong.

It’s helpful to think about the relevance insurance has to society, he said, and it’s not something that should be forgotten. Rather, insurance businesses should continue to push to stay relevant and increase what they can do to support the changes that are happening in society.

“I’m very optimistic about the industry being able to support the innovations that are happening in new business models for small businesses,” Mang said. “Because this is the industry that has, every step of the way, for multiple centuries, been there to allow great outcomes to happen - the warmth of the fire, but then taking care of the hut that burns down, as that happens every once in a while. This is the industry that helps, so I’m very excited about the things we’re investing in as a sector.”