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Transformation in Aviation Insurance

Special feature from James Gilbert, Head of Automation at Starr Companies.

The age-old phrase, ‘If it isn’t broke don’t fix it’, can apparently be attributed to a certain Thomas Bertram Lance, who was the Director of the Office of Management and Budget during President Jimmy Carter’s reign in the late 1970’s. It’s a phrase that resonates with the thoughts and attitudes of numerous market practitioners when it comes to moving from the traditional way of transacting aviation insurance using pen, reams of paper, hours of face-to-face negotiation and ink stamps. While an element of this should of course remain, digital transformation is in full swing and would be reckless to ignore.

While I can’t quite see a completely paperless society, having heard from and met numerous insurance personnel in the Personal Lines/Small to Medium Enterprise (SME) sector, it’s obvious they are well advanced and fully engrained in using tools such as Artificial Intelligence (AI), Machine Learning, Intelligent Automation (IA), Robotic Process Automation (RPA), Optical Character Recognition (OCR) and certain segments of Blockchain. Taking Blockchain as an example, this is hardly a nascent concept, having been around for a decade.

There is an argument as to whether this type of technology is indeed an opportunity or a threat, however, what is clear is that it should help our sector facilitate growth, which in turn will improve our client engagement, offer competitive products and develop new ideas around the Internet of Things (IoT). Much work is needed to make this flow seamlessly though, especially in the commercial side of the business but there are now numerous tech firms amongst us campaigning for serious investment and recruiting brand names to open our eyes to what is achievable in this exciting change of thought.

In talking about change, there will always be resistance to it – ‘I don’t have the time/money/skills… I have tried it already… I don’t need it… it doesn’t work…’ the excuses are endless. However, to give an idea of how serious Insurtech is really being taken, in the first quarter of 2018 alone, there was USD 724 million worth of deals agreed – the highest ever level, and a staggering figure that equates to a 155% increase on the same period in 2017. Lloyd’s of London is now some two years down the line with its Placing Platform Limited (PPL), which, on the face of it, looks encouraging and I am assured it won’t merely add to the list of numerous other unsuccessful platforms that have flown across our desks without landing!

There is of course the mindset of underwriters and brokers alike who may see such change resulting in reduced headcount. This may well be the case in the long term to a degree, but with the aforementioned RPA for example, such ‘bots’ won’t completely take over – remember they have to be taught what to do at the outset, and in the early stages there will be errors that need rectifying and quality assuring will be paramount.

Back office functions have to change and automation projects provide these skills. The days of keying in mounds of data to underwriting systems to capture risk details should be numbered, allowing an Underwriting Assistant for example to learn how to assess risk in the proper manner and using AI as an assisted tool once insurance principles have been understood. The concept of the ‘nudge theory’ should really be applied within our market, it’s all about making it easier for us to make informed decisions, which should become easier to achieve in the new digital world.

It’s quite amazing how much the internet itself has changed our daily lives already, we rely so heavily on it and would now be lost without it. The speed of change from cc:Mail to Email, from analogue to digital, even from the basic laptop to tablet, the list of comparison in change is endless. In taking ‘Moore’s Law’ into consideration and the ‘doubling effect’ that was first considered in 1965, it’s interesting to observe how accurate it’s been. Will this trend continue and can we relate it to insurance? Focussing on aviation, underwriters already have platforms for brokers to utilise and quote/bind small transactional business within general aviation and aerospace but how far away are we from using these portals for flag carriers within the airline market? The next ten years should see a significant shift of how we broke and underwrite our risks. Uploading schedules of aircraft fleets and exposure details, and applying applicable rates, should be straight forward enough, while smart contracts within Blockchain in insurance are in their early stages, but will again facilitate and assist in digital documentation.

There will be many challenges and hurdles to overcome in our journey of change and transformation. But let’s not get left behind, the digital world is here to stay and we should embrace it – get on board!