Mr Sigulla, thanks to digital networking there is much more data available today than in the past. How does this change the calculation of risk in industrial insurance?
Stefan Sigulla: The risk can be calculated more reliably because the data provide more certainty in calculation. The anticipated claims can be determined more reliably, and as a result, the safety margins for any miscalculations are lower. The customer therefore benefits from more risk-adjusted prices.
What data flow into the calculation that were not included ten years ago?
Today, we know precisely where the individual premises operations are located. Using GPS data and models, we are able to precisely calculate the effects that would be exerted by specific events on the individual parts of the operation. However, new data also help us in other areas.
Let’s take the example of a hurricane that has caused flooding in large parts of a country. Today, you can see where the water is standing without having to be on the ground. You are able to analyse satellite images or fly a drone over large areas of territory. Claims settlement can be carried out much faster and more precisely with better data. You can also respond better with the aim of avoiding damage, if information from supply chains is used. If you know which goods are on which ships you are able to redirect them if there is an emergency. Finally, you are likewise in a much better position to estimate the consequences of a halt in production at a supplier. Is a product impacted by this which other companies need in order to manufacture their own products? If a door lock is not supplied, there may be production lines elsewhere in the world at a standstill.
So companies are willing to share their data with the insurer?
They provide data if they are confident that it will be handled sensibly. And if we tell them about the advantage they will gain from cooperation. I don’t see any stonewalling there. This is all about cooperation. However, most importantly we need even stronger networking with publicly accessible information.
Although there is a large amount of data available, the customer interface in industrial insurance is frequently still analogue. Do you see a need for catch-up there?
Today, a delivery service can tell you exactly where their goods are being transhipped, and when and where you can collect your package. We also need to get to that place. We need to move away from paper to electronic files. Our internal processes need to be faster and more transparent – this also applies to communication. At HDI, we will soon be able to offer our customers a better level of overview and processing status for each policy, each cash flow and every one of their claims worldwide. There are companies which are represented in more than hundred countries. These companies want to know information like this.
Tender platforms have also been used to digitalise taking out insurance policies, ultimately without much success. Why has this approach not worked?
If you want to present a platform as a genuine tender, you need to be able to display all the requirements for the insurance policy there. However, platforms often simply define an insurance policy largely in terms of price. You can purchase pencils on platforms, but the same is not true of complex services. Other issues also play a role, particularly in industrial insurance: What is the rating of the insurer? Are claims going to be settled by in-house personnel? How is data passed on? What about risk management? How will the international programme be implemented? Ultimately, a platform that attempts to itemise everything requires more work than conventional development. Digitalisation is not an end in itself and you have to ask some very precise questions here about costs and benefits.
Okay, so you don’t think that there will be an online comparison portal for industrial insurance policies?
You can only create fine-tuning for insurance in personal negotiations. And ultimately it is this fine-tuning that creates value added and trust. Today, I can’t really imagine that there will ever be purely digital conclusion of policies. However, I wouldn’t like to exclude it entirely. At one time, I couldn’t imagine that there would be an app for payment transactions – and now I can’t envisage operations running smoothly without it.
Perhaps products ought to just be made simpler so that they can be marketed better in the digital world?
There will undoubtedly be a certain amount of standardisation, perhaps there will also be more insurance modules that can be compared more easily. The fact remains that a company manufacturing consumer goods needs to have insurance that is different from a company that is constructing harbours or refineries. That could not be achieved with simple coverage, you need tailor-made insurance solutions for coverage of this nature. If there is a claim, no customer wants to hear that their coverage unfortunately has a small gap in it.
Have you actually noticed that digitalisation is also changing the insurance requirement of customers?
Quite clearly. The business models of our customers are changing dramatically and we need to respond to that. For example, previously machinery manufacturers only used software occasionally. In the meantime, the machinery manufacturer has become a software supplier who also happens to supply a robotic arm. If the software does not work properly, the customer has a business interruption – without any damage to property having occurred. The consequences may well be dramatic. We have responded to this and supplemented the policies with this software coverage.
Does this also include protection against cyber risks?
I would always look on cyber risks as being separate. I believe that the risk of a cyber-attack is so great that a separate policy is needed – at least in industrial insurance. Initially, you have to provide immediate help for the company through assistance services. The initial considerations are not at all about the potential damage. After all, the damage gets greater by the hour if you are unable to offer the right support for crisis handling or you don’t have anybody on the ground who knows which forensics they have to apply.
How does something like that operate in practical terms?
Stefan Sigulla: One example we had was a customer who maintained premises operations in several countries. A virus at one of the locations posed a threat to an industrial plant. We sent out specialists immediately. Over the weekend, they succeeded in isolating the virus so that production was able to continue on the Monday as though there had been no interruption. This was a big success demonstrating that assistance services are the key factor for cyber insurance.
Aren’t you putting huge cumulative risk on the books by insuring cyber risks?
Stefan Sigulla: We will undoubtedly need to keep an eye on entirely new cumulative scenarios. After all, a cyber-attack could impact on several companies at the same time – in a similar way to an earthquake that damages a number of factories in a region. We are therefore deploying technology in order to check which supply chains are linked up with each other.
HDI was established as a mutual insurance society of major industrial companies. Today, you might call it peer-to-peer insurance. Do you perceive a risk that insurance companies might merge together and use technology to create an insurance company without an insurer?
Stefan Sigulla: In my first life as an industrial manager, there was an initiative along these lines. Companies wanted to merge their risks together. However, that came to nothing as a result of some basic considerations because the companies had different views about risk management. If one company takes a lot of precautionary measures, it is effectively paying for the damage sustained by the company that is being less careful. It is a difficult message for a company to communicate to its shareholders that there is no profit in a particular year because there has been a fire at another company. They would have to anonymise this information across a large number of companies. Instead, the companies prefer to make use of an industrial insurer – and concentrate on their core business. Essentially, there is no better alternative.
This text was first published on www.gdv.de. Publication on this website by courtesy of GDV.