The Alchemy Crew report, “The Future of Commercial Sustainability: Closing the Digital Gap for Emerging Commercial Insurance Risks” looks at a vitally important concept for the insurance sector – commercial sustainability. ITC Vegas 2022 discussions revealed three core tenets for the insurance sector to become more commercially sustainable:
- data, analytics, and ethics;
- responsible underwriting;
- and disrupting the insurance business model.
Commercial sustainability is what customers want and what our planet needs, so it’s a critical discussion. This article highlights one tenet of this valuable dialogue: data, analytics, and ethics.
A complete definition of commercial sustainability and your opportunity
Our interpretation of commercial sustainability involves the convergence of two central concepts.
First, commercial refers to commercial lines’ insurance offerings for corporations, such as significant industrial, commodity, and energy companies undergoing an energy transition within their business and operational models. Secondly, sustainability relates to economic, environmental, and societal initiatives critical for establishing more sustainable capabilities.
Sustainability is not just environmental, though this is critical. Instead, it involves human, social, economic, and environmental factors – the four pillars of sustainability. In commercial lines insurance, this entails delivering sustainable value to commercial lines customers, employees, shareholders, and other stakeholders.
Regarding The Future of Commercial Sustainability report and the ITC Vegas discussions that led to it, we particularly consider sustainability issues to hinge on climate risk, supply chain disruptions, and urban population explosion. However, within these areas, we know that there are additional layers of risk, particularly the risk of sustaining innovation, operational risk, and energy transition.
“Commercial sustainability requires senior leaders to forge a solid base for economic, social, and environmental prosperity. It requires a deep understanding of existing interconnectivity among those elements for corporations to provide long-term value to customers, employees, stockholders, and the community.
To achieve this, we must embrace innovation, manage operational risks, and navigate the complexities of key issues such as energy transition, while addressing climate risks and supply chain disruptions, as well as evaluating the implication of a global surge in urban populations. In a nutshell, commercial sustainability is about fuelling long-lasting success by juggling the delivery of short-term goals with a wider outlook to invest in a sustainable tomorrow.” – Scott Gunther, Managing Partner, IAG Firemark Ventures
Introducing data, analytics, and ethics
In insurance, we love data. Think back to the actuaries of old pouring over their actuarial tables of data, calculating probabilities to determine insurance premiums. And now, in the modern age, we have immense quantities of data that our forebears could never imagine. That data can help us meet our commercial sustainability objectives. However, only if we understand, manage, and utilize this friendly beast in the context of broader sustainability ethics.
As an industry that offers risk management and protection products while handling billions of pounds in premiums, the insurance sector is responsible for influencing sustainable practices. Indeed, it’s an opportunity that will enable the mature insurance industry to weather the future. Consumers demand it, and data enable it.
The role of data in commercial sustainability in the insurance sector is both a solution and a challenge.
“Commercial sustainability requires creativity, a shift in thinking, and a willingness to adapt your processes to support a brighter future, all whilst ensuring you still meet today’s demands. But how can we determine what’s sustainable without clear data supporting it? Too many still view sustainability as a liability, not an opportunity, which is why data, analytics, and ethics play such a critical role. They not only help us achieve our ESG targets and deliver more impactful value to customers, but they also bring about positive change and give meaning to our purpose.” – Rocio Sarriegui, Global Content Director & International Strategy, InsureTech Connect
So much data, but is it good?
The Future of Commercial Sustainability reveals some fun and mind-blowing facts and stats about data. For example, in a recent infographic Raconteur highlighted that the world will generate 463 exabytes (1 billion gigabytes) of data per day by 2025. That’s an impossible quantity to imagine, fueled by the Internet of Things and connected devices.
The sheer volume of available data is overwhelming. Determining which criteria are most relevant to safeguard companies and individuals and drive innovation in risk assessment, pricing, fraud detection, and loss reduction can be challenging. Deloitte suggests that most insurers are still in the early stages of data management maturity. They still need to make data more accessible, shareable, and actionable to realize its full potential.
While data and analytics offer solutions to closing the protection gap, many companies struggle with data management and cannot leverage their data assets’ full potential. Insurers are turning to new data sources, including sensors, analytical models, and external data aggregators, to improve the quality and accuracy of the preventative services offered across the insurance value chain.
Sean Rider, Chief Revenue Officer at One Concern, explains some of the issues: “Insurers buy data sources and integrate them into their business models, but we have not yet built up the components required to create repeatable value-generating insights. We’re leaving value and insights on the table but analyzing data sets in isolation.” Legacy constraints and siloed systems often hinder insurers.
Data quality, integration, privacy concerns, bias, and complexity mean that data isn’t just part of the sustainability solution but also part of the problem if we cannot learn to handle big data more ethically and effectively. Insurance companies must willingly integrate data sources and manage the issues head-on.
Startups vs incumbent giants
A Deloitte Center for Financial Studies survey of insurance companies found that most are in early-to-middle data analytics maturity stages. Only 6% reported themselves as ‘pioneers’ with advanced data analytics. A sizeable 38% describe themselves as ‘explorers’, with just basic reporting for operational metrics and some predictive modelling.
However, startups put data at the heart of their business, considering it a core asset and instrumental to building business infrastructure. This allows better and longer-term data monetization, especially in disrupted business models with new revenue streams.
Working with startups enable established players to utilise Improved data sources, advanced analytics, and enhanced risk evaluation methods to narrow down the protection gap. By utilizing ethical and unbiased data sets, we can generate accurate insights, facilitate the deployment of more competitive pricing, improve insurance affordability, and deliver relevant outcomes for currently underserved market segments shares Scott Gunther.
The ethical issue of data
As we rely on increasingly larger volumes of data sets, the issues of data ownership, associated rights, and data ethics are becoming critical. Businesses consume vast amounts of data daily, often without explicit knowledge of who owns it and how to use it ethically and efficiently. The rising number of penalties resulting from data breaches highlights this concern. Even within the narrower context of ESG data, there are ESG conundrums! Data is inconsistent and clouded in secrecy and lack of knowledge. There’s also the issue of data accessibility.
With new regulatory guidelines on the horizon, such as the EU Data Act, data providers will experience an impact on their business models. Data users will now require knowledge of the data’s origins, and data providers who prioritize security and transparency will have a competitive edge.
Given that, in the context of history rather than the microcosm of short-term efforts, we’re still in the earliest stages of taking advantage of the reams of data available; it makes sense to build ethics and sustainability into our monetization attempts. The emerging industry leaders in insurance are using data insight to build sustainable and ethical revenue-generating mechanisms that work alongside ecosystems of data partners to deliver new, customer-centric offerings.
“As leaders in today’s data-driven world, we must address the critical issues of data ownership, associated rights, and data ethics. With the increasing reliance on vast amounts of data sets, we must understand who owns the data and how we can use it ethically and efficiently. The challenges of ESG data further add to the complexity of the issue. As regulatory guidelines evolve, we must prioritize transparency and security in our data models to stay ahead of the competition. At the same time, we must ensure that we are building ethical and sustainable revenue-generating mechanisms that work collaboratively with data partners to deliver customer-centric offerings. By doing so, we can create a brighter future for all stakeholders while driving long-term success for our organizations.” – Lisa Wardlaw, President of 360 Digital Immersion
Data is an essential tenet for the future of commercial sustainability…
…but it is one tenet. Data has a crucial role in advancing sustainability within the insurance industry. It empowers insurers to enhance risk assessment, develop sustainable products, prevent fraudulent activities, and encourage sustainable behavior among their customers – as long as the challenges are scaled. As a result, data can significantly contribute to promoting sustainable practices in the insurance sector.
However, as our report, The Future of Commercial Sustainability: Closing the Digital Gap for Emerging Commercial Insurance Risks, explores, it sits alongside responsible underwriting and disrupting the insurance business model. Together, these three tenets will enable a sustainable future. InsurTech innovation demands it.
“We look through our personal lens with empathy and motivation to do more for our families and friends. I say that we keep that same focus on building sustainability in every aspect of our work – through innovation and collaboration – with the same touch of compassion. Think about what we could accomplish if we kept the goal of a safer, cleaner, and better world as our guide and lens!” – Susan Winkler, VP & Executive Director, CT IFS
Alchemy Crew customizes R&D and Commercialization Labs to fast- solve some of the most pressing challenges within the insurance and finance sectors. Using open innovation, ecosystem thinking, and digital experimentation, Alchemy Crew collaborates with established market players to speed the curation, validation, and commercialization of emerging technology ventures and de-risk partnership and investment activities. Our ultimate goal is to industrialize and democratize corporate venturing techniques to ease multi-party deliveries of long-term sustainable unfair advantage. The team works with leading insurance players, including Cigna, Nissay, Travelers, and Zurich, to name but a few.
