“Think about what could happen, not just about what will happen”

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“Think about what could happen, not just about what will happen”
04 May 2020
“Think about what could happen, not just about what will happen”

Editorial by Valter Trevisani, Co-General Manager of the Insurance Area of the Cattolica Assicurazioni Group 

We are living through the experience of Covid-19, the “black swan” evoked years ago by the genius of Nassim Taleb. This invisible, unexpected and insidious pandemic has brought our daily routines to a sudden halt and challenged many of our core beliefs. What was previously improbable is now ruling our lives, and manifesting itself in all its virulence, both economically and socially. We have all witnessed the containment measures, lockdown, the roll-out of smart working, and the challenges faced by a growing number of economic operators. No one knows whether life will return to its former rhythms and routines. We do not know what form the “new normal” ahead of us will take.

The impact on the financial services industry is twofold: the “black swan” has compromised customers’ solvency, while also challenging established organisational models. Presumably, in the next few months the insurance sector will see a deterioration in claims in segments such as income protection, medical insurance, trade credit and pure risk insurance, while spread trends could have an adverse effect on the solvency ratio of the entire sector. Moody’s estimates that the solvency of the European insurance sector has already decreased from 210% at the start of the year to 190%. From what we have seen so far, the insurance industry has clearly shifted its focus onto two key aspects: employee safety and the engagement and support of customers and partners.

We activated smart working at Cattolica Assicurazioni on February 23, ensuring that our services continue without disruption and preparing a comprehensive plan of measures to support the stability of the agencies. In this context, technology has been and will increasingly prove to be a strategic asset in the implementation of business strategy. However, unlike in the past, technology will not be primarily devoted to reducing costs but rather to enhancing the customer experience. Insurance companies will need to improve customer service by using simpler, more intuitive policies and ensuring immediate service provision. The digitalisation of some parts of the value chain and the increasingly widespread and sophisticated use of data and data analytics will be some of the issues that insurers will have to address, including by developing ecosystems with operators in other industries. The use of artificial intelligence and machine learning will gradually become more commonplace.

The insurance industry is currently facing a sharp decline in new business across all business lines. Therefore, more than ever before, the retention of our customers is vitally important. This can only be achieved through the perfect integration of man and technology: the central role played by humans and the need for qualified, personalised advice can never be eliminated from insurance relationships. Although contracts can be issued and premiums paid remotely, what customers clearly appreciate most is the help provided by qualified and competent insurance agents. On the other hand, as Steve Jobs once said, “I would trade all my technology for an afternoon with Socrates”.

The current emergency is telling us loud and clear that in order to earn our customers’ trust in products, claim settlement, sales and after-sales services, we have to move more rapidly along the path of excellence. In all these areas, digitalisation will be even more of an enabling and facilitating factor for agents, intermediaries and professionals able to prioritise a complete view of customer needs. We must strive for excellence in serving our agents and customers as best we can, and for us excellence must increasingly mean being able to perform our ordinary activities extraordinarily well.

We are embarking on a journey, during which we must place more emphasis on professionalism, listening, advisory services and customer loyalty, combined with a painstaking, consistent respect for all the technical conditions on which the insurance profession is based. In these times, underwriting or pricing actions that do not focus enough on key aspects such as anti-selection of risks or the control of cumulation in exposures could pave the way for serious deterioration in future industry balances. It cannot be ruled out that some of the guarantees recently introduced on the market by some operators could prove unsustainable in the future because reinsurance capacity is not available on international markets.

Insurance works on a principle of mutuality that can never be violated, much less in addressing pandemics such as this one. In the immediate future, the Covid-19 emergency requires us to draw up resilience plans, to both staunch any bleeding and treat any wounds. In other words, we have to consider the various ways in which the crisis might develop in order to mitigate its effects and formulate a strategy to contain volatility. We therefore have to focus on fundamental aspects such as:

  • identifying and prioritising key risks;
  • developing scenarios based on the outcome of high priority risks;
  • performing frequent stress tests on economic and financial drivers;
  • producing a catalogue of potential measures and the relevant points of no return.

Finally, the implementation of these measures requires a completely new approach to the planning process. Instead of predicting what will happen, we need to consider the possibility of what “could happen.” The challenge will be to think systemically, not so much emphasising normal risk forecasting capacity as anticipating and managing unpredictable risks. To achieve this, even more so now than in the past, close alignment of all the main elements of the value chain will be required (primarily marketing, sales, hiring, claims settlement and finance), based on a flexible, agile approach, inspired by creative leadership and supported by distributed technologies, in order to implement a virtuous change focused on what is valuable and essential. Now, more than ever before, all the members of our organisation need to be “constantly on the same page”.