Mark Huxley, Founder and Chairman at Cognitive Risk, which is a strategic and digital change consultancy focused on Insurance and technology. Mark has 40+ years of working within the insurance community and more latterly in wider financial services.
Mark, can you give us a bit of background on yourself and how your path took you to where you are today?
My working life began working within the globally iconic Lloyd’s insurance market as a claims specialist, but ultimately rounding that out into operational management.
Early on, a healthy curiosity made me always question the norm and be an agent for change. After twenty years in the market, I left to found a specialist insurance claims business that offered outsourced professional services to UK insurance businesses. It was a visionary business with it being founded in 1998 but being entirely web based, with much of its data living in the 'cloud', not that it was called that then! This brought great attention upon the business and myself as the architect of it and I often became featured in the national and trade press. The result was having grown the business to scale I had gained a reputation as someone who could strategically help businesses go through their own growth and evolution journeys.
Move the clock on fifteen years, this saw me found—and with my colleagues—grow out successful marketing and communication businesses, my roles leveraging my insurance expertise. It also saw me help create the strategy for launching an insurtech business. Having now divested myself of interests in those companies I have since-times offered my long experience to strategically advise businesses and mentor key people within them.
This itself has now brought me to found Cognitive Risk with Matt Carter, a long term business friend from within Lloyd’s. Aside of work I was proud to have my entrepreneurial activities recognised and be invited to become a Freeman of the Guild of Entrepreneurs, one of the City of London’s youngest members of its 1000 year history of professional Guilds.
Effects of COVID-19
We’re still in the early days of the Coronavirus crisis, clearly this is going to have a huge effect on the insurance world. What advice would you give to insurers trying to navigate this new reality?
I guess this will fall into two key elements, the products and services it provides to its clients, and perhaps equally important, its own internal operating structure.
Looking outwardly to its products and services, an unprecedented event of this scale will no doubt have a ripple effect on what is and is not covered. I hope the industry takes the long term view and errs on the side of supporting those directly affected, whilst reminding those that bought policies that they are structured on the basis of being unambiguous in what is and covered and priced accordingly. Where there are grey areas these are almost always judged to be the responsibility of the expert; the insurance business and not the lay person; the client. Insurers must therefore do the right thing by their clients in a time of crisis. Going forward it must always think hard about how to adapt its services to provide the right coverages, learning from the severity of experiences such as this.
Because Insurance is a force for good and now is the time to make sure it lives up to its billing as such.
Internally it needs to look at how successfully it responded, improving on things that didn’t work and not self-congratulating on successes. These can always be improved upon too. It also needs to look at its operating structures to ensure that coming out of this enforced change that it keeps the lessons learned front of mind and adapting how it works going forward.
The Association of British Insurers (ABI) lobby group said some members had been forced to take a commercial decision to stop selling policies such as travel insurance. I’ve heard you say, that actually now is the time for insurance, can you expand on that?
Now is the time for insurance to step up to the plate and respond professionally and supportingly to the clients it has. What would not be sensible would be to continue to sell products that would be unreasonably exposed, disproportionately to the premium being charged. There is an old adage, nothing is not insurable, it's the price that judges. The more certain it is that something will happen, then the premium will become closer to the actual amount of financial exposure. The industry taking a commercial decision is therefore the right and proportionate response. It is the immediate next steps that will dictate the earned or lost reputation the industry takes forward.
What will be the effect on how premiums are calculated and claims are handled post-Covid-19, do you think?
I am sure all the actuaries, pricing specialists and underwriters will be huddling now to see what their short and more medium term looks like. Insurance has a simple core pricing methodology: it is the likelihood of the return of an event that governs pricing. So theoretically a “once in a lifetime” event should not affect ongoing pricing models. Or if it is seen as a perceived risk, then specific policies to cover such an event are created and priced accordingly.
Perhaps of interest, London broker Marsh created a pandemic-specific policy to protect business losses a couple of years back, when of course it was not front of mind. Perhaps unsurprisingly they could not sell any policies. What do you think the reaction would be if that is put into the market today!
Travel insurers are in the press almost daily for not paying out; what will be the effect on trust in the industry? Can insurers do anything to tackle the issue of trust?
I would reference my answer above. I am of course an industry insider and as such I have spent a career watching the industry positively respond to a myriad of catastrophic situations, quietly and without making a fuss. Sadly however the industry more broadly suffers a poor public perception and its the negative press that comes out in the teeth of storms such as these that underlines much of it.
I’m not here to defend the industry, but would comment that it is a plain truth that the industry sells its products in a regulated manner, customers have every opportunity to read their policies and with cooling off periods ask questions and if not satisfied get their money back and that there is no policy that is a blanket cover, so if it isn’t fit for purpose then it is often, not always, unfair to pay the blame at the industry’s feet. If the counter argument is to be taken, one would have to ask the question whether customers would be prepared to pay twice or three times the amount in premium to be afforded such a breadth of cover. I think we know the answer to that.
As said, I am not defending the industry and it has too often sleep walked into the trust issues, but it is not entirely of its own making.
New entrants are working hard to make policies much simpler but reflecting upon historical experience if the coverage mirrors this simplicity, in that it is not broad it could still result in customer dissatisfaction, when the unexpected strikes, and not now covered in this new simpler wording. Care must therefore be taken to navigate carefully around this potential issue.
Society is changing in so many ways and it is the duty of the insurance industry to respond to it.
This is potentially a really positive time for startup insurers in verticals like pay-as-you-go insurance, or insurers for delivery drivers and so on, do you think these providers can become serious players, and what verticals do you think they will attack next?
Society is changing in so many ways and it is the duty of the insurance industry to respond to it. So yes, there is already a significant move towards this style of insurance; whether it is for gig economy workers as you preface, or connected homes using smart tech with related insurances, or pay-per-mile motor insurance. There are new forms yet to come, only limited by the imagination of those conceptualising them. But already we are seeing insurances being managed on a peer to peer co-operative basis where premiums go to a centrally managed pool; cycle insurance being a case in point and so-called parametric insurances, where a policy automatically triggers and pays if a measurement is passed; for instance a lack of rain for a crop or a delay to a flight triggering an automatic payment for subsistence or accommodation. The challenge here is for these businesses to scale and move the needle sufficiently for the outliers to become the mainstream, changing the habits of the incumbent insurers and customers themselves becoming comfortable with assuming an amount of greater responsibility in their insurance buying decisions.
There’s been a lot of speculation about when Insurance’s ‘fintech moment’ will come, when we really see wide digital transformation, and movement towards digital-first solutions, across process and experience. Do you think COVID-19 could be that moment? What needs to happen?
Insurance offers a multitude of data activation points, some customer facing, some internal and technical; data lakes, AI, machine learning, robotics and the like. Answering your question I think the current crisis may spawn some product innovation, but more likely with the dislocation in working conditions, may prove the catalyst for a fast accelerated change in how tech is deployed to improve operational rigour and agile working as well as help technical decision making be made more automatically and quickly allowing the insurance technicians to then use that time saved to make better qualified decisions upon their risk selections.
Digital Transformation in Insurance
Staying on the theme of digital transformation, you’ve talked about the Direct Line example, where Direct Line exploded into a huge player in Insurance by reducing margins and process, and the incumbents let it happen under their noses.
Can you expand on that analogy - what do you think are the lessons?
Direct Line was in my opinion a true unicorn moment for the insurance industry when it was founded in 1985. With its then radical proposition of removing (in their view) excess payments to brokers, telephony based primary contact (radical then) and 24/7 operations on underwriting and claims (unheard of before), it gained traction at a great pace and scaled accordingly. A year or so later it had redefined how its target sector of private motor [insurance] operated and created a huge shift in the market. The lessons are clear about having the total belief in the proposition, be sincere in its big idea that transcends the transactional business, and drive that proposition to demonstrate and improve the public interest and ensuing reputational equity. In its early days it really did shift the Status Quo.
Do you think the same thing could happen again, and how?
Personally I don’t see such a step change gap, I therefore feel that the changes will come via changes and evolution in product design, customer experience and distribution.
I think the parametric insurance sector is ripe for scaling as the need is as broad as the whole of insurance.
We’ve seen the rise of technology in narrow aspects of insurance, for example the Internet of Things, or IoT. What insurance vertical or aspect of insurance do you think is likely to go digital next?
For the reasons said above I believe there will be innovation on many fronts. I think the parametric insurance sector is ripe for scaling as the need is as broad as the whole of insurance and there are few sectors where one cannot conceive of a potential interest. IOT aligns nicely with the move of insurers becoming risk preventers and not just payers, this relationship of helping people and businesses not suffer losses and premiums reduce accordingly is likely a real growth area.