ADRIAN JONES, MANAGING DIRECTOR, RE/INSURANCE AND PARTNER, HSCM VENTURES – WE NEED TO RECONSIDER THE WORD INSURTECH
This week´s guest on The Voice of Insurance podcast is Adrian Jones, Managing Director and Partner at Hudson Structured Capital Management Ltd. In this episode, Adrian discusses technological investment sweeping through the industry, algorithmic underwriting, data, and how the hard reinsurance market will impact start-ups with Mark Geoghegan.
Much was covered in the podcast, and we´ll be covering only a few topics in this blog. If you want to learn more about the state of insurtech, we highly recommend you listen to this exceedingly informative and interesting podcast.
As Uber disrupted the taxi market and Airbnb disrupted the hotel industry, has disruption in the insurance industry turned out to be all hubris or has there been genuine disruption? Adrian responds, “Insurance is a slow-moving business, but when it does move, it moves in a very big way. And I think the business has moved in the last five to seven years.” Adrian comments that there have been enormous technological advancements, with around 55,000 people now working for insurtechs. However, for those looking to establish an insurtech company, Adrian offers this piece of advice, “I think the key for young companies is you have to be prepared to show that you have high-quality underwriting,” which is a big change from what we saw three or four years ago.
Speaking about technology advancements in the insurance industry, Adrian comments, “There´s been extraordinary advances in technology across the board. In fact, I added this up recently. I sat down with the Chief Technology Officer of an insurance company, and we just drew out all the technologies that you will need in order to build an insurance company, both insurance-specific technologies and then technology outside of insurance….and we then analysed when was each of these companies founded and what you realise is you could build essentially an entire insurance company with products that have been launched since 2008.” Adrian goes on to discuss how this is something that wasn´t possible 10-15 years ago. Starting a young company back then would have meant buying a server and most likely building a lot of the technology. Nowadays, it´s much more efficient and faster to start a business, particularly on the consumer and small commercial side, but even on the deep specialty side, says Adrian, one just needs to look to the growing number of companies supporting Underwriters who want to start an MGA.
How innovative is the market? Adrian replies, “I think the market has actually stepped up in a massive way. In terms of supporting innovators and being willing to take the risk if the innovation goes wrong, I think that´s something we should all be very proud of and very happy for.” However, as technology has progressed, Adrian suggests that the industry needs to look closer at its common goals, adding, “I think that the industry has to be more willing to set aside parochial interests in order to promote the common interest, which is to deliver better insurance at a lower cost to consumers.” Adrian mentions that he is encouraged and excited about the progress being delivered by PPL, the Core Data Record, Lloyd´s Blueprint Two, and Lloyd´s Lab.
What does the future hold for algorithmic underwriting – will there be more of it? Adrian comments, “There are people who say, well, algorithmic trading has never actually worked, and so it´s not going to work this time, and I reflect on that, and I say, yeah, there are very valid reasons why it hasn´t worked, it´s very difficult to get right, it takes a lot of effort, but I come back to the point that I made earlier around the incredible advances in technology just within the last ten years, and I think people underestimate that.”
Adrian points out that as the power of AI classification models from 2010-2020 improved by a factor of 44x, he believes that algorithmic underwriting is a little bit like in 1993 when cat modeling first came out. As cat modeling pushed the edges of what was possible from computing and technology perspectives, people resisted it. Even though there are still issues in cat modeling, Adrian reminds us that algorithmic underwriting is a natural evolution of the trends we´ve already seen in this space, “We´ve used algorithms a lot; I think it´s just a natural evolution of what we´re seeing today.”