UK banks and insurers that fail to manage the risks associated with climate change could suffer a 10-15 per cent hit to their annual profits, the Bank of England warned on Tuesday.

Insurers stood to lose out both from the impact of climate change on their investments and through higher payouts for flood and other damage, the BoE said. Insurers’ assets could fall 8 per cent in the most benign scenario, but 15 per cent under the most extreme scenario, with life insurers particularly exposed. Inland and coastal flooding was likely to drive up claims in the UK. In the worst-case scenario, about 7 per cent of UK households that insurers currently cover could become uninsurable, the BoE said. “It’s worth emphasising that these costs would be mostly passed on to consumers through higher premiums,” said Woods Head of BoE Prudential Regulatory Authority.  

Insurers can mitigate that by leveraging the increasing amount of data sources available for underwriting which is itself benefitting from combining AI with those data. Increasing premiums is an option and processing claims and payments more efficiently and effectively.

The sheer cost and inefficiency in paying and reconciling payments to suppliers, contractors, claimants and receiving payments from customers et al is only now being given the attention it deserves. Just last night at Instech's  "Making the most of Payments" event payments solution providers Mastercard, Imburse and Stripe demonstrated the benefits to be gained.

Stripe explained how customers like Deliveroo depend on the ability to distribute payments for orders paced to the food supplier, the delivery driver, Deliveroo itself. Cover Genius the same benefit of using Stripe to distribute gross premium payments to all the participants in the value chain involved with full and real-time reconciliation. Too many insurers have to rely on manual reconciliation with all the delays, disputes and cost that involves. 

Climate change, cost inflation and intense competition all pose challenges to insurers intensified by the tendency to plan innovation and transformation in departmental silos rather than across the whole enterprise. Payments often treated as the sole responsibility of Finance whilst Claims, where 70% of cash flow typically resides, is not allow3d to plan transformation of payments in and out. 

Transformation must be an enterprise-wide strategy rather than treated silo by silo in order to mitigate the challenges of climate change. The dependence on the large and complex core systems that underpin so many insurers does not help. Whilst they have hordes of connected solution  providers in their App Stores the reality is that if you make a change in one point solution it invariably means hard coding changes across the platform ecosystem, delay and cost. Or worst still- waiting whilst a major upgrade is in place and dev work is frozen until the new version  is deployed. 

Insurers are a hostage to fortune there as the years of investment make them reluctant to change. It takes a tipping point like the acquisition of esure by Bain Capital demanding change fast across the whole business. The CEO David McMillan is leading from front with the vision to become the "Insurer of the Future" leapfrogging other carriers in the process. esure sold off its famous  price comparison aggregator business GoCompare to focus on an ecosystem driven range of products and services that deliver the rapidly changing insurance requirements of customers of all ages and backgrounds.

Turning its back on the core platforms that are still hard-coded on-prem systems at heart even when deployed on the cloud the backbone of esure’s technology platform are 

• cloud-based Amazon Web Services (AWS)
• omnichannel contact centre Amazon Connect
• US digital insurance Coretech platform EIS. 

 Native cloud, modern technology better able to deal with innovation and transformation where every customer is on the current version.

They are architecturally better suited to agility, rapid iteration and its fail-fast, fail-often mantra 

"New technologies, APIs, Cloud, Micro services & just how well engineered these basic building blocks of technology are fundamentally changing the ability to do small, quickly and repeatedly and not create legacy. Big systems are legacy before they are even delivered. Many are legacy before the implementation event starts. Modern tech can pivot."  Bart Patrick of Genasys

CoreTech is seen in companies like EIS, Genasys and Ice Insurtech. And when combined with similar architecture platforms insurers, brokers and MGAs can enjoy technology ecosystems that let them tackle the challenges highlighted in the FT article e.g. : - 

Claims platforms like RightIndem

Payments platforms like Stripe, Imburse and Mastercard

Counter Fraud platforms like Shift, FRISS and Net-Reveal

Not that you can escape hard graft. esure's  Chief Strategy and Transformation Officer Roy Jubraj explained the massive amount of planning and hard work required to become the “Insurer of the Future”. It's not the simple stairway to heaven seen on many a vendor's website. No-code software will not help if you have not planned the transformation project and have not gained the buy-in of all involved directly and indirectly. 

Further Reading

Creating value, finding focus and choosing the right technology partners

Insurers, competitors, transformation and digital maturity

 A Perfect Storm is Brewing in the Auto Insurance Industry 

Floods in Australia decimate insurers’ natural hazard budgets