Rocking the Boat – Data & Analytics in the Marine Insurance Industry

Earlier this year, I hosted a virtual panel session in partnership with The Marine Insurer, that explored how data and algorithmic underwriting is transforming the marine insurance sector. Participants discussed if current platforms and systems are fit for purpose and agile enough to enable marine insurers to improve risk profiling and add new lines of business and products.

Although we discussed algorithmic underwriting, the impact of Covid-19 on the industry, and if marine insurers are investing enough to make a genuinely forceful change, there was one overriding sentiment underpinning the discussion: the status quo no longer works, and marine insurers must transform if they are to rapidly respond to shifting market needs and survive in today’s digitized economy.

The Legacy Factor

Let’s start from the point at which many see lies at the core of the industry’s challenge to innovate and capitalize on technologies such as machine learning, Artificial Intelligent (AI), and automation.

With the challenges around securing an increase in P&I premiums, reducing exposure in certain areas, and static market conditions, marine insurers seek to drive premium growth and increase market share through portfolio diversification. However, many marine insurers in the US still operate on legacy platforms, which means they are potentially missing out on using technology that leverages data assets and analytics to improve underwriting decisions and risk selection. Data-driven decision-making is the new frontier for insurers in the digital age.

During the roundtable, one participant said that success over the next three to five years would largely depend on how marine insurers use data and analytics. Commenting on this point, he said: “We have the upper hand of the data but also the lower hand as we have legacy systems; I guess the problem I find is that the systems are not adaptable, we have so much data, which is brilliant but how do we integrate that data with our systems… some systems are clunky, and there is a real debate going on whether we need to bin our systems or whether we need a new system to adapt.”

Running on monolithic systems largely prevents marine insurers from pivoting quickly to respond rapidly to changing market forces, creating new products, and taking advantage of emerging business opportunities. However, having a legacy system doesn’t necessarily mean a carrier cannot benefit from newer and innovative technologies. One of the main obstacles when replacing legacy systems is that many of these monoliths still offer a decent level of service, and justifying the expense of replacing them entirely can be hard to make.

Expensive and large-scale “rip and replace” projects of transactional systems might not be necessary. Modernization and progress do not always have to come from disruptive changes that upend the entire IT ecosystem; systems can be modernized and updated through incremental steps that enhance and streamlined processes that are just as effective as total upgrades.

Our recommendation is to start with small, value-based, incremental decisions that allow insurers to shift their software ecosystem with minimal disruption and maximum ROI. It will ensure staff is not overwhelmed with their current workload and provide them with a successful path in learning new ways of writing business.

Deep see data diving

The Global Marine Insurance Market is expected to grow by USD 8.42 bn during 2020-2024, progressing at a CAGR of 4% during the forecast period. For marine insurers expecting to capitalize on this, proactively managing risk with powerful real-time analytics and curated intelligence to drive profitable growth is non-negotiable.

Shipping networks are becoming more sophisticated and more intelligent day by day, leading to marine insurers dealing with an influx of new data and business challenges without the benefit of having historical data or viewpoints. Digitalization is spreading in the marine industry with ports connected through Internet of Things (IoT) technology, supply chain logistics, and the automation of vessels.

Trading patterns are much more available compared to the past because of data and analytics, with marine insurers having a much better grip on the risk profile through data and analytics, which has enormously helped the industry maneuver through the pandemic.

When combined with an underwriter’s intellectual property, data-driven underwriting is the dynamic duo that every marine insurer should be aiming to have. Underwriting analytics is not about replacing the tacit knowledge that Underwriters have; it’s about enhancing it.

In the next ten years, having the right analytical solutions for underwriting and taking a holistic, transformative approach to digitization that is not done in a piecemeal fashion will allow companies to outperform their competitors.

Achieving operational efficiencies through data and analytics will partly rely on data sharing; however, there is still a lot of reticence around this. During the roundtable, most participants agreed that marine insurers must do more to share data amongst themselves – but how much data should be shared? One panelist said that the industry must “sit down and figure out how do we use this massive amount of data from an environmental and crew point of view… and that we need to join forces to meet social obligations that are put in our hands.”

Competitive data should not prevent insurers from delivering for the common of the marine industry, but sharing data for the sake of sharing data is inherently complex. The first step is to figure out the given problem and understand if sharing data is the solution.

There will be two types of marine insurers within the foreseeable future – those who base their underwriting decisions on algorithmic-driven underwriting and those who will no longer be around.