The past, present and future of insurance risk management


The insurance risk management industry has undergone seismic changes in recent years. Where once companies viewed loss control as a means to achieve process efficiency, it has since become much more far-reaching.

Risk Control Technologies, a provider of loss control and safety software solutions to the insurance industry in North America, hosted a webinar with a panel of industry experts. The panel explored the evolution of loss control, key trends taking place currently, and what companies are doing to make the most of their loss control systems.

Karlyn Carnahan, head of insurance, North America at Celent, kicked off the discussion by outlining some key trends in loss control at present.

Also known as risk control or safety, loss control is a proactive risk management technique that aims to reduce the likelihood that a loss will occur and reduce the severity of the losses that do occur.

New paradigms have been emerging that are set to shape the future of the insurance industry in a significant way. Firstly, Carnahan said the insurance products themselves are fundamentally changing. Insurance companies are now taking a much broader view to the products they provide, offering value-added services before a loss occurs, such as detection devices and wearables in a bid to prevent losses.

Another way in which products are changing, Carnahan continued, is that they are much more data driven. “Today we are using data to build expertise. This also means that gathering the data, and ensuring the data is more accurate, is a much more critical function in an insurance company.”

This has also meant there has been a shift in how the insurance customer is ‘rated’. Carnahan continued. “Instead of rating them on who they are, companies are now rating them on how they behave.” A prime example of this is auto insurance, instead using gender and age metrics, companies have shifted to leveraging driving behaviours.

Carnahan also said product differentiation is becoming more important. That is, providing a product that is unique to the industry and to the type of risk it refers to.

Secondly, there is also a greater reliance on partnerships in the industries, shifting away from a “build your own” attitude. This use of partners in the world of loss control, Carnahan said, provides a wider variety of services but it also means there are more people to involve and hence collaboration is more important.

Lastly, when it comes to policyholders, companies are looking to differentiate themselves through making digital transformation a priority and providing better customer experience. Carnahan said this is a more sustainable way for companies to differentiate compared to, for example, competing on price.

Outsource vs in-house

Earlier in the year, Celent surveyed 26 insurance companies. Carnahan said that insurers often outsource loss control inspections, for a number of reasons. The survey revealed that only 11% of companies said they have no loss control. Whereas 16% outsources their loss control, 47% sourced it in-house, and 26% do both.

“What that means is almost 75% of insurance companies are doing some kind of loss control. Using it to gather unique insights to deliver a strong customer experience. So, the question becomes then, how well are they using loss control?”

Firms that exclusively outsource loss control, generate less than $100m of revenue a year, meaning they are small insurers (Tier 5 insurers.) Those who didn’t provide loss control were all Tier 4 insurers, meaning they generate between $100m and $500m of revenue. Therefore, Carnahan said you cannot necessarily predict this based solely on the size of an insurance company.

Loss control as an opportunity

David Da Costa, CEO at RCT, agreed with Carnahan’s observations about the industry. Da Costa highlighted that one key point to be made about loss control, is that it is a major opportunity for companies to differentiate themselves and provide a better customer experience.

“Outside of loss control, you are typically only interacting with a customer during a claim, which isn’t always a positive experience. So, loss control is an opportunity to have staff with soft skills that can assist in that manner.”

Da Costa noted that with companies who exclusively outsource their loss control, they may get all of the technical capabilities, but if the third party is not representing the brand per se there is a question over whether they are missing out on those soft skills.

In addition, Da Costa said that loss control used to be associated with a physical survey or inspection, it has since become more consultative with a wider range of touch points. “When I think of loss control today, it is a more robust function. It is not just about physical inspections or visits; it is about how can you prevent as much risk as possible alongside improving customer experience and retention.

“At RCT we like to think of it as a predict and prevent strategy. We want to help customers identify the riskiest accounts and figure out the best way to mitigate that risk. Whether that is through a physical survey, or other touch points.”

Christine Sullivan, senior vice president, global risk solutions at Sompo International was in agreement with Da Costa and Carnahan. “We are not surveyors anymore,” she said, “the role is now a consultant role.”

The role of loss control has grown exponentially, she continued. “We have to be able to quantify what the potential losses might be and what does that potentially look like. Then really try to develop solutions to control and mitigate those losses.”

Now, when companies look for loss control, Sullivan said that soft skills are more important. “Technical skills are teachable in my opinion; you have to have those soft skills. Being able to talk to clients and sell your solutions is important.”

Supporting with technology

Referring back to Celent’s research mentioned earlier, Carnahan pointed to a section of the study that looked at how insurers are supporting loss control functions with technology. According to the report, overall, 35% of insurers have not invested in a standalone loss control system. Out of those companies with in-house only loss control, most (68%) have invested in a system either as a vended product or homegrown. Out of those companies who outsource their loss control, all have invested either in a homegrown system or built into their policy administration.

What is interesting, Carnahan said, is that 35% of companies don’t have technology to support their loss or risk control functions.

The study also asked companies that do have a loss control system, why they have one. Carnahan said that 56% of companies cited an improved customer experience. A lot of this, Carnahan said, is due to the ability to launch self-service tools. Other aspects included embedded communication and follow-up communication.

“The fundamentals of a good customer experience are improved when you have the technology to help you do it consistently, efficiently and effectively.”

According to Da Costa, traditionally clients were leveraging technology to support loss control systems predominantly due to the process efficiency benefits. “It was the process automation, the cutting out of manual processes and errors.”

As the technology has evolved, Da Costa continued, companies are now looking to understand the data and targeting the right customers, as well as eliminating manual processes.

Sullivan said that for Sompo International, they initially were looking to improve workflows when implementing loss control technology. Now, she said the company has turned its attention to customer service gains.

Another important trend in the loss control space, Da Costa said, companies are also looking now to integrate a more connecting loss control system, that is not a separate entity.

You can find the full webinar here.

FinTech Global spoke to Risk Control last year to discuss how the company is pioneering loss control.

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