In a risk-filled world, insurance product innovation is everywhere

When you think about innovation, insurance is not always the first industry that comes to mind. Most people think about innovation in the technology, consumer goods or even entertainment sectors first. But insurance innovation can have a sizeable impact too, and a significant amount of it is driven by program managers.

Program managers are constantly scanning the market, listening to customers, and talking with claims teams to identify areas of risk that are not included in current coverage offerings. In today’s age of uncertainty, program managers can also provide much needed peace of mind to clients who want to ensure all exposures are protected.

Cyber, climate change and geopolitical tensions are broad and emerging risk categories that have been on the insurance radar for several years. Recent headline-making events have exposed some of the nuances insureds deal with in these categories, as well as areas where more coverage is needed.

Below are several areas ripe for insurance innovation.

Cyber that goes beyond malicious attacks

In mid-July, companies around the world received the blue screen of death on computers running Microsoft. The cause was not a malicious actor, but an accidental error released in a software update by cybersecurity company, CrowdStrike. The outage will cost Fortune 500 companies, excluding Microsoft, at least $5.4bn in direct financial losses, according to Parametrix.

The firm also said that cyber insurance would only cover 10 to 20 percent of the losses based on large risk retentions and policy limits at many companies. Industries such as travel, healthcare, financial services, technology, media and manufacturing were particularly impacted.

The innovation opportunity: broader cyber coverage to include accidental errors and appeal to companies that are heavily reliant on expansive computer networks.

Parametric coverage for high-risk supply chain corridors

The devastating collapse of the Francis Scott Key Bridge in Baltimore in March could cost insurers up to $4bn, according to analysts. That is a record-setting shipping insurance loss. The event has already spurred new coverage offerings. Marsh launched a $50mn port blockage insurance facility designed to provide clients with coverage for loss of revenue caused by third-party accidents.

The innovation opportunity: as appetites for parametric coverage expand, there may be more products protecting global infrastructure.

Extreme temperature loss protection

Not only was 2023 the hottest year on record, but the previous nine years were the warmest on record, according to the National Oceanic Atmospheric Administration.

With extreme heat comes losses. Amtrak and NJ Transit experienced cancellations and delays along its Northeast Corridor as its 100-year-old infrastructure malfunctioned.

A recent report from the California Insurance Commissioner found that the total economic impact was $7.7bn from lost wages and productivity, agricultural and manufacturing disruptions, power outages, infrastructure damage and more from the last seven years of heat waves.

The innovation opportunity: a variety of parametric and traditional insurance products that protect companies from the repercussions of extreme heat.

Capitalising on innovation

For program managers, speed to market is of utmost importance. Standing up a new product and marketing it before competitors enter the space is often the ticket to success. But identifying emerging risks and effectively underwriting them can be challenging and negatively impact profitable growth.

AI-powered technologies can run through several different risk scenarios to identify which could be most likely. These tools can analyse third-party data sources in real time and identify current and future exposures to improve underwriting, pricing and risk management.

AI also allows program managers to gather information from various documents and online sources, upload the information into models, then use these models to see if there is an appetite that matches with product offerings. The same tools can then render a decision as to whether terms and conditions are offered.

Once the program manager decides to offer a new product, generative AI tools can help the organisation create business requirements and code the product into policy administrative systems. Once issued, generative AI can impact the speed and accuracy of claims assessment and payments, as well as make recommendations for renewal terms and conditions.

Every day events reveal new areas of risks. For program managers, innovation is everywhere. With the help of technology, they quickly determine the best approaches for new policy offerings.

Michael Parcelli is senior vice president, client partner, MGAs/MGUs/brokers at Xceedance