Beyond risk: The untapped partnership between energy and insurance

Daren Rudd:

Yeah, it's a really interesting point, Peter, and I think the way I think about it is insurance works at a couple of different levels. So, we often think about insurance as a point solution for my car, my house, my business. But when we look at the more complex insurance that's run, we do provide cover for business interruption, which is much more coming up to a level in terms of looking across how things are interconnected.

I think traditional models are insurance as a point solution to solve individual, protect businesses from individual risks. Where I've seen a change particularly is we're starting to move towards thinking about those interconnected risks, and I think, as we get more data flowing through the environments, organizations, particularly on the broker side, where they're working very closely with the risk managers or big businesses, they want to look at the whole risk overall rather than just an individual part of the overall risk. So, I think it's that interconnectivity, particularly when we look at global supply chains and how just-in-time delivery is impacted by disruption across those, the more insurance can be involved in that, but not just in the reactive mode, but actually working with the insureds to work out where that risk potentially looks different or is moving over time. I think it's really important.

Peter Warren:

And it was something we discussed on the previous podcast with Helena and Charlie Wark. It was that one of our clients was telling us at one of our leadership meetings they happen to be Michelin, that when he took over the organization, supply chains were looked at every six months, maybe even longer. It just was one of those things that they looked at because they had to. Now, the disruptions of the supply chains, both geopolitical, as well as things like physical piracy and so on, means that the supply chain is something they look at weekly. It's not something that they are… it's a constant monitoring of where my products are moving forward. They had to put a lot of positions in there from a data standpoint, but all of those shifts and disruptions, both the physical attacks on their supply chain as well as geopolitical disruptions, are all things that impact the insurance industry. What's your views on that?

Daren Rudd:

It's really interesting in terms of how insurers price. So, it's in the same way that the Michelin example is they've gone from looking at their supply chains once every six months down to every few weeks. Insurers traditionally, because it's a pool of risk and they're looking at the bigger picture overall rather than the individual. We're changing their rates once every year or once every nine months. With the technology shifts and the data moving faster, that ability to change rates and react much faster to the changing risk levels and down at the individual insured as well is forcing rates to change much faster. Now, that doesn't happen everywhere and there's still lots of complexity with the actuarial models and how things are designed and shaped and repriced and the understanding of the risk. I think insurers are increasingly going to move and reprice faster and look at how the rates are going to work alongside the way that the businesses that they're insuring are moving and reassessing their risk as well.

Daren Rudd:

The challenge, though, is how do you build that risk pricing into that near real-time position on large, complex businesses?

So, you can do it in a car. You've got an IoT telematics device and that's fairly straightforward, but the sheer complexity of the number of factors that have been taken in any underwriter looking at that would be raising their eyes at me. I think if they're looking at this saying you just can't take all of that complexity into rate and price at the level. But I think we've got to step up to that challenge to work out how that's going to happen, because everything's connected in such a way that it wasn't even four or five years ago. It's changed much quicker than that. So, the challenge for the insurers is how do we consume and bring that data in to actually work and price effectively? And I think as well it comes back to not just pricing the risk but look at how we can mitigate the risk and use the insurance's wider view of an individual within an industry, because we're insuring multiple individuals across that industry and I think there's a different way of looking at how we mitigate and support society and those wider connections through insurance.

Peter Warren:

You use the word price effectively. That doesn't mean increase the price all the time. I think there's a false assumption that insurers just want to raise the price. They actually want to price things to reflect the actual risk and if they have better data, they could understand this. And I know that we were talking about this as we prepped for this call about how, if they had a better view of one risk, they could perhaps drop your rate there. But perhaps companies are having exposure to risk that they're not insuring that an insurer could actually step up and help them with and improve their business better. So, what's your viewpoint of exposing data and interacting with insurance companies as a partner?

Daren Rudd:

Yeah, again, I get people's natural reactions when most people's interaction with insurers with car insurance or home insurance and it always feels like the prices are going up. Most of the time, though, those prices are going up because the cost of claims and replacement is going up. Just the cost of everything is. So, it needs to reflect that. Insurers want to be able to price effectively. Their whole models are based on that, so they're not looking to make excessive profits from that. They're looking to make sure that they're able to react.

They've got certain, as a regulated industry, they have to make sure that they've got enough capital at the background to support those claims that come through. And they've got adjusters and they've got reinsurers looking over the top of them saying, “explain to me how you've assessed this risk and how you've decided to price it that way.” So, the more information I think we can share across industries, the better able those actuaries are in terms of not just looking backwards but looking forwards as well. That near real-time information that's flowing through helps that pricing work much better. Now, we're a long way from doing that in reality on complex business insurance, but I'm seeing that in we're already there with telematics at house, at least at the motor level moving into house. But we are moving into commercial property risk, for example, and managing water loss and those types of things with active interventions through IoT devices and monitoring. So, I think there's a mix of —it's not just about risk pricing but risk mitigation and working with the businesses to better manage and understand the risk as well.

Peter Warren:

It's a good one and, from a personal story standpoint, I have installed a whole home water system. It sits on the main valve coming into my house and the other day at two o'clock in the morning it turned the water off automatically because it detected what it refers to as a micro leak. So, when I got up in the morning and I had some contractor work done, so I looked at all the work and said no, it's not leaking. Turned out to be a toilet valve. It was the old screw type instead of a ball valve, and I guess the washer was giving out and it was doing a slow drip.

So, I was able to figure that out, but I could have also. I installed that and that company that I purchased this unit from will give you something I could send to my insurance company. But it would have been better for my insurance company to proactively say, “if you put one of those in, I'll give you a discounted rate,” versus “you told me you put one in, I'll give you a discounted rate.” Perhaps there could be more integration of that and perhaps I wouldn't even mind them monitoring it. Maybe if I'm away and they could tell me that you've got this problem here. How are IoT devices that's a personal level looking at that moving forward? You talk about it for an energy company or anybody, any manufacturer or producer. How do you see them getting closer with their ranking of IoT devices?

Daren Rudd:

So, there are two challenges for an insurer. Now, my view from an IoT device is, industry will implement IoT and business-level telematics because it improves business, and they'll drive through on that because it creates a better business for them. I think insurers need to buddy up and understand and guide organizations on the additional data that they need that helps them price and manage risk better. The challenge for insurers is when they take the lead on IoT, and I've seen this before, particularly when we move into the examples that you've done that at household If the insurer invests today with you to give you that device and we do this in the UK, I've got my insurers giving me a fairly clever, simple device that looks at my incoming water.

It's not clever enough to switch it off, but it does tell me when I've got a leak. Someone's got to invest in that upfront, but you may choose to move the insurance the next year and in the UK in particular, personal insurance moves very, very fast in terms of people moving around. So, they're not going to get the money back from that investment, particularly if it's as complex as something that can shut the water off and monitor it. So, how do you incentivize both sides to do that and deliver that work? Again, if you’re working like Johnson working in the past with one of the larger insurers looking at complex IoT across big estates, property portfolios, someone’s got to invest in that telematics kit that’s going into the environment and then get the benefits back. So, I think to make this work on both sides I don’t think it’s an insurer-led IoT with devices into the buildings but I think the partnership is how do I leverage what’s already there and add to it particularly if I’m going in for the first time to get the information back from the insurer’s point of view because there’s slight differences in what they need to see to manage that risk and price better.

Peter Warren:

So, Daren, we're talking about supply chains and ecosystems. What's your viewpoint on those?

Daren Rudd:

I think it comes down to ecosystems building resilience. In the natural world, you know, the most resilient ecosystems are those that are, you know, can adapt. It costs, more, particularly from an economic point of view, to be resilient, to build those resilient platforms in. From an insurance point of view, we often have to step in when those lower resilient ecosystems break, or those value chains break down. I think if we're looking at the way that insurance is a societal good and I know not everybody believes that, but you know we're here to pick up the pieces and put stuff back. I think we do need to be looking at how do we make our ecosystems more resilient from that citizen point of view. How do we bring that and stitch that together? So, we're not thinking about point solutions on insurance or backup positions, but how do we actually build that resilience into the overall ecosystem? And I think again, that only comes when we bring multiple parties together the insurers, the energy partners, others to really think about what do we need to do to build back better.

Peter Warren:

That's brilliant. Thanks very much. If I gave you a minute to summarize it, what would you leave for our audience here as a final thought?

Daren Rudd:

I'd say anybody, particularly on the business side of it go and have a conversation with your risk manager you will have one, particularly if you're a large organization and talk to them about where the biggest costs are from an insurance perspective at the moment, particularly if you're looking to make some change. They may give you a slightly different perspective in terms of how you can take cost out of your business or mitigate the risk better by engaging with a risk manager who will then be working with the brokers and the insurers that can provide those additional insights. So, I think, think about insurance, even when you don't want to really be thinking about insurance, would be the way I'd be looking at it.

Peter Warren:

So, it's like supply chains, it's an everyday thing now.

Daren Rudd:

Yeah, yeah, yeah. And nothing happens without insurance. Rockets don't fly, ships don't sail, those types of things. So, we are always here, unfortunately, but we're here for good.

Peter Warren:

Thanks very much, Daren. Appreciate it. Have a great day.

Daren Rudd:

Thanks, Peter.