Podcast: Where next for insurance and risk management?

 

RiskACUMEN podcast: Episode 4 transcript

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Johnny Thomson  00:01

Hello and welcome to the latest episode of the RiskACUMEN podcast, which offers thoughtful insight around risk engineering and management. My guest this time is Finlay Smith, who until quite recently was Chief Underwriting Officer with the London based multi-national insurance group, RSA.  Finlay is now enjoying a new role as chairperson with innovative MGA Accelerate Underwriting and has previously held positions such as Director of UK and European markets for Property with QBE, as well as Risk Solutions European Underwriting Director at RSA. Hi, Finlay. 

 

Finlay Smith  00:39

Hi Johnny. 

 

Johnny Thomson  00:40

How are you coping with the latest lockdown? 

 

Finlay Smith  00:43

Yeah, copings the right word. I think we're, we're, we're holding on there and praying for March 8th. But I never thought I'd be so grateful for work Johnny, it's keeping me busy. So that good.

 

Johnny Thomson  00:55

Yeah, that's the main thing, isn't it? Now, Finlay or Fin as many people know him, is not only hugely experienced in the world of insurance and underwriting, but he's always been a passionate advocate of risk engineering and risk management. So let's begin with that. And tell me a little bit about why you believe risk engineering and management services are so vital to the insurance industry and beyond, of course,

 

Finlay Smith  01:23

Well, I was trained in a way in which, in my formative years, I had lots of opportunity to go out and meet clients and deal with brokers. And this was this was going by back to the 80s in my early days with the Sun Alliance. And I was lucky enough to work in a role that was called an Underwriting Surveyor role at the time. You don't really get these characters now. What you had to actually do is go look at the risk, go back to the office, quote for it, and then quote to the broker. And at the same time you were given risk management requirements. Now what that instilled Johnny was a, was a real understanding of the three interests that were involved here. I think most underwriters get trained purely from an underwriting perspective, it's all around what they want to write, it's one way, my way or the highway type approach When you're out out very young in a situation like that you very quickly have to learn, that clients have got much broader issues they've got, they've got budgets to manage, they can't do everything you may ideally want them to do. So you've got to learn how to compromise with that, you've got to get them on site. And you've got to find out what the brokers driver is in the middle. And that instilled in me, early years, a real understanding and empathy and actually an enjoyment of it. A lot of people would hate that and just want to go back to underwriting and getting the price out and saying bang next deal, please. But I really enjoyed that variety of engagement, I guess. And it provoked in me an interest in that client perspective that I guess I've kept all the way through my career.

 

Johnny Thomson  02:59

Yeah. So I guess for you, it's not just about reducing the insurers exposure to the risk, which of course, is hugely important, but it's also about being more customer-centric. Yeah? And providing risk services that are valued by commercial clients, and by the broker involved in that and taking a more active approach. Yeah?

 

Finlay Smith  03:17

Absolutely. And I think I think that's key. And I still think I still think we've got a long way to go as an industry to get that right. That's the ideal.

 

Johnny Thomson  03:28

OK. Tell me a little bit about well, how things work now, you know, what you've seen? And what's the process with, let's say a larger, more complex client in terms of assessing the risks and then offering additional risk support It's probably worth mentioning that the audience here is, is a mix of, you know, those risk managers and safety managers out there who are effectively end-clients of insurers, as well as people from within insurance as well. So it may be useful for, for the risk managers and so on to understand a little bit about how it works from an underwriters point of view.

 

Finlay Smith  04:03

Yeah, from an insurance point of view when we're looking at writing a major client for the first time, there's a huge emphasis on the risk management piece, what we think we can offer, how we can align expertise. So for example, depending what industry that may be in so if it's financial services, it might be about forensic accounting skills and business interruption. If it's a more traditional fire driven risk, set in the chemical industry or something, then we're going to want to get chemical engineers or metallurgy engineers involved as quickly as possible with a client so that we can understand the client's processes better, how they manage them, and build and build that rapport with with the client. Now initially when you're tendering for it, you do that through conversation with the broker, and hopefully if you do enough to win the business again, or get in contention with business, you then get a chance to speak to the client. And that becomes really important because you want to establish rapport The client's got to be comfortable. I mean, I've seen a number of cases in my time where, where the tender process has fallen down, because the client is either very loyal to their existing company because of the risk management relationship,  or vice versa, no matter what you do, that may have gone sour, and you can keep the client because that relationships gone south. So it becomes a really, really important aspect.

 

Johnny Thomson  05:34

Yeah, you said that things, you felt like things could could improve or could be better. You know, which areas in particular are you thinking of there in, in the process? Where could improvements be made?

 

Finlay Smith  05:47

I still think, you know, to be honest, I don't think the industry has moved that much in the last 25 years. I still think it's traditionally from a risk management perspective, very heavily property driven. And if you speak to client risk managers, and hopefully some will be on this call, and this will resonate with them, they don't, they don't get up in the morning worrying about the fire risk. They don't get up in the morning worrying about their flood damage most of the time They get up in the morning worrying about other risks, and at the moment, it will be Covid. But other times it's around supply chain management, for example. And it's around business risks, or closures of their business for other reasons. Sometimes economic or political, sometimes, sometimes physical. So I think you know, we in the insurance industry kid ourselves a little bit that if we're sending out a very, very well qualified ex industry engineer then job done. But I think that's probably catering for about 10% of what's on the risk managers, plate.

 

Johnny Thomson  06:52

Yes.

 

Finlay Smith  06:53

And what we've got to get better at doing is looking at a wider risk palette and getting much better at understanding what the emerging risks are, both from an insurance perspective, but also helping the client on the wider, maybe uninsured risks that they have to think about.

 

Johnny Thomson  07:11

Yeah, so I guess it's understanding those client needs and you're right in what you're saying. I guess there's vastly different needs across the whole spectrum, isn't there? You know, if you compare those of a multi-national player with a chemicals industry, company, like you mentioned, to a small hospitality risk, for example, their needs are entirely different, and they need different kinds of support The large complex risk will undoubtedly have its own high level risk expertise in house, whereas a smaller business may well have a far greater need, even though the exposure could be far less.

 

Finlay Smith  07:46

Well, that's absolutely right. And it's always been the way. I think that what what I'd like to see is, is greater emphasis on the independent risk management companies, if you like. And, I say that principally, because I think they've got the motivation to develop a client relationship that is client focused. And for the best will in the world, insurers are going to be looking at the risks that they're insurring. And you know, you sort of understand that, but let's not try and pretend that they're going to spend a huge amount of effort or cost in helping clients understand aspects that they may not be insuring because they're not seeing a return in that. And clients are under budgetary pressure, and we all know that governance and risk is never a popular item to be spending money on internally, so so there is a need I think for more specialism in this area. As we see all sorts of insurance services being outsourced more like, whether it be claims handling or whether it be policy documentation production, there's been a big push towards that outsourcing aspect. I think that an area that could do with with a greater injection would be more independent risk management companies that can provide clients with that, with that insight truly from a client perspective,

 

Johnny Thomson  09:13

And I guess it also means different sort of tiers of service, doesn't it?  From, like I said, the very small business right up to the complex, offering a different kind of service to those different groups.

 

Finlay Smith  09:27

Yeah, and there's lots of there's lots of ways of tackling. I mean, the SME world gets neglected a little bit in this space, but there are ways of looking at that, those risks, because, you know, they tend to be largely homogeneous and therefore, risk management companies can offer packages in that space, that can just guide the client along that area. 

 

Johnny Thomson  09:50

What about the use of data? I mean, it's something that's often talked about as the next big thing and that sounds like it would probably suit that area in terms of risk management. Are you actually seeing this develop within insurance? Or is it something that's just more talked around?

 

Finlay Smith  10:05

Well, I'm seeing it develop, Johnny. I'm not seeing it be a light bulb moment where we're suddenly we're going in a different area. I think that data is better than it was in my days of pacing around buildings, data is better now in that we're better as an insurance industry, gathering the client's data and giving them a giving them a dashboard, and a profile. So if you have a multi-national client with 60 risks around the world, insurers have become much better at showing the client where the good ones are, where the bad ones are, and why that is. So the client's got a much better insight, into the risk. But again, it's it's very heavily predominantly property oriented. And if we're going to talk about how data, and I think we need to, how data can actually inform risk management beyond that, I still think we're at baby steps. We're at baby steps in terms of, we've been talking for 20 years of a data being the new oil, if you like and so lots of effort's gone into collecting more data, but there's still a bit of, there's still a bit of a dilemma of how to use that most effectively. And I still think there's an issue around how you can trust it, to drive to drive decisions that previously were either made by human beings, or previously, people could try and try and test things out. So I think there's a little bit of, there's a big bit of development needed to drive data more assertively in the risk management space and demonstrate its value.

 

Johnny Thomson  11:43

Yeah, is what you're talking about also, because there's perhaps a little bit of a disconnect between, let's say, the underwriter and the end-user of the insurance. Because of course, you have the you have the broker inbetween, and perhaps understanding the needs of the of the end user is difficult at times. But that's perhaps where, you know, the collaboration between the three areas that you talked about when you talked about your early days in your career, and that became real, by virtue of the fact of getting out there and doing that, perhaps that's something that needs to, to accelerate and become more of a feature of the relationships, yeah?

 

Finlay Smith  12:24

I think that that would, that would certainly help. I think there's an element here, I see that relationship, that tripartite relationship, as a series of three, it's a Venn diagram of three circles Johnny, iswhat I'm trying to say. And there are some conflicting elements in there as well, which I think we should be honest about, and particularly in big clients. Brokers are quite protective of the client relationship. And it can be, it can be quite difficult to build the insurer to client relationship directly The broker always wants to be there, the broker wants to make sure that...

 

Johnny Thomson  13:00

Which is understandable as well, of course, yeah?

 

Finlay Smith  13:03

It's very understandable. And the broker's also selling risk management services, a lot of the time, especially the big international brokers certainly are. So there's an element, there's an element of mutual interest without a doubt, but there's also an element of conflict. And, and hence my thinking of we almost need a new way. Somebody is going to come in and disrupt this market. And they're going to use data to do it. Because I think one of the big factors, and to be fair, one or two, certainly one of the major brokers has been leading on this. And that's around using data to compare companies against their peers, so that they can compare themselves and then say, Okay, this is this is how we're looking, this is what we're paying on for our insurance. This is how our risk looks, this is how our risk management works. This is how we're perceived. But again, whilst that's being done through the lens of a brokers clients, and then you're dicing,  cutting and dicing it and getting slower slices of the pie all the time. So that obviously, for data protection issues, the brokers are only going to share general parts of that data with the insurer that's got their clients and they're placing in business withlots of people. So everybody's only seeing tiny little pieces of the pie. If you've got a relationship with a client, the client can be very focused, and and get more out of those comparative data without it, without it being that thing of well we can't show this insurer the data of a specific other client, because it's a competitor. If that makes sense?

 

Johnny Thomson  14:34

Yeah, yeah, absolutely. Are there any other risk innovations on the horizon Fin? Or what about other exposures as well, that that stand out? I mean, we've seen with Covid that new risks can suddenly emerge. What else should everyone be worried about? 

 

Finlay Smith  14:48

Yeah I think I mean Covid's the obvious one, isn't it? I think that there's a lot of innovation and good ideas out there to deal with the first part of your question and there's there's lots of companies. I'm working on a couple companies that are being quite innovative around around data. You know, the challenge that we're finding is, is these are small insuretech startups and to get in and getting into the C-suite of the insurer or the broker and demonstrating that value can be quite difficult. It's a, it's a tough challenge to sometimes get these ideas out of the incubation stage and into adoption by a major organisation. And major organisations are conservative, they tend to fall back on dealing with a big consulting partners that they, they can sell to their boardroom. And that's that, you know, it's stifling innovation a little bit. But you know, some of the ideas that we're working with, work really well at the SME and mid market side. We're gathering data on, publicly available data or easily purchasable data and comparing 1000s of like-for-like customers across the sector, and then show them to an insurer or a broker, demonstrate the characteristics that make the client good or bad. And you can help the engineer or the broker target the business they want or avoid or risk manage the business. So it's a more of a portfolio approach to risk management. You're managing your whole portfolio there. So from an insurer or broker perspective, that can work really well. And there is value for the client as well, because you can understand what the elements are around giving them the giving them a more negative view.

 

Johnny Thomson  16:33

It's interesting what you say about value as well, that's one of the big issues around risk and risk management is that you can't necessarily see what the outcome is. So if you invest heavily in it, then nothing happens, you don't know what would have happened if you if you hadn't invested. So I guess that's one of the big problems. And if we're looking at it from a pure financial perspective. But I guess this is where the being more customer-centric comes in, because if it's if it's perceived value by the end-client, then there is a great value in it that way, isn't there?

 

Finlay Smith  17:06

Well, you've hit the nail on the head there, Johnny. I think the traditional view of insurance generally and risk management is, clients have looked at it in the past often as being, we don't get a return on it, because we're never going to make a claim. And therefore it's that, that drives some negative behaviours around purchasing it and you don't want to pay for something that you don't feel is returning any value. But if richer relationships can be developed around a broader risk environment, and let's bear in mind clients now are having to be far more risk focused across the whole piece, across the financial risk, whether it be from a PRA perspective, and governance, or whether it be the health and safety of their employees, as well as their actual business and trading risks. If we can move the risk management industry into a more holistic thinking around this, the client will see more value rather than just, to be blunt stopping the building's burning down or get flooded. 

 

Johnny Thomson  18:06

Exactly. Great Fin. I guess the key point overall, then, is it risk services from within the insurance sector need to keep evolving, and maybe evolve at more of a pace and with greater collaboration as well between underwriter, broker and client? Using that risk engineering, management and support to add that mutual value? This is what we're talking about, really, isn't it as mutual value, everyone should benefit from that? 

 

Finlay Smith  18:31

Yeah, I think that that's right. I think there's another stage in evolution needed, as I touched on earlier. And I'd like to see the risk management industry evolve more quickly and independently. And insurers, frankly, stop trying to be all things to all men. They're always going to need their risk management focus to protect the risks that they write on the balance sheet. I think there will always be a gap, if they're looking to, to help clients and clients are looking to evolve their risk management with external help, there's always going to be a gap there that I think insurers aren't necessarily motivated to fill. So it's an area I think that is ripe for some disruption and for somebody to come in and fill that gap.

 

Johnny Thomson  19:16

Yeah, bringing another partner into that tripartite relationship...

 

Finlay Smith  19:20

Exactly, do the work for the insurers, so you're fulfilling their requirements. But also you've got that direct relationship with the client and you're providing the client with broader services that the client's independently purchasing for the value that they think they're getting out of it.

 

Johnny Thomson  19:36

Yeah. Okay. Anything else you'd like to get across or that you'd like to cover? Or does that kind of touch on everything from your perspective?

 

Finlay Smith  19:45

I just, the only thing I would say on closing is risk management is only going to become a more important factor for business across the world. We live in a world of risk. Our world is more sophisticated with electronic media etc, electronic communications, and it's getting more complex every year.

 

Johnny Thomson  20:08

And boy, have we seen this in the last last year as well? Yeah?

 

Finlay Smith  20:12

Exactly. And risk management is therefor only going to be a bigger need for clients. So that gap will absolutely need to be filled. 

 

Johnny Thomson  20:21

Brilliant Fin. Well, thanks for your thoughts today. I hope it's helped some of our risk and safety managers who listen in understand a little bit more about the insurance side of things. And also our insurance industry listeners see how things could potentially evolve moving forward. So yeah, thanks again Fin, really appreciate it. 

 

Finlay Smith  20:40

You're very welcome Johnny. Thank you.

 

Johnny Thomson  20:42

You've been listening to the RiskACUMEN podcast. If you have any questions or comments around the topic we've covered today, please go to our LinkedIn page. You can find a link on www.riskacumen.co.uk. Thanks again, Fin. Great chatting with you as always, and until the next time. Good bye for now.

  

  

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