Into the Looking Glass: 2022 Risk & Insurance Trend Predictions
With 2021 behind us, we want to share what’s top of mind for our team here at Archipelago while we head into the new year.
Our team reflects on the trends that impacted the risk and insurance industry last year and how we expect them to shape the industry in 2022.
Rising Costs Push Risk Management Proptech to the Forefront
Property insurance costs have been rising by double-digit rates for years, and climate volatility and other factors will likely sustain these trends for years to come. In 2022, risk management will become a hot Proptech category as large owners adopt technology to take control of their total cost of risk and—in doing so—transform their risk management and insurance practices to deliver ROI by making insurance a controllable expense.
In addition, large owners will converge their insurance-related risk management strategies with their resiliency initiatives—currently operating largely in silos—to drive mutually reinforcing business impact. Data will drive integrated risk management decisions across the lifecycle of the business, from assessments of the total cost of risk of an asset during due diligence; to ROI on property improvements and mitigations to reduce risk, increase resiliency, and reduce premiums; to alternative strategies to optimize the retention and transfer of insurable risks, including via catastrophe bonds, insurance-linked securities, and other alternative forms for risk transfer.
— Hemant Shah, Co-founder and CEO
Risk Managers Take Center Stage
Risk Managers’ roles and strategic importance have accelerated dramatically over the last few years and will continue to do so. Historically, many C-Suite executives may perhaps have viewed the key role of their risk managers as being to minimize the cost of insurance programs that they know they have to have but resent having to pay for. The appreciation and strategic relevance of risk management has been steadily growing for a decade, but recent trends have accelerated that to a whole new level. Trends include, of course, the game-changing impact of COVID, but also ESG and climate change moving from the periphery to the core of the C-Suite agenda, recognition of the potentially existential threats of emerging risks such as cyber and contingent BI, and all this above and beyond the unexpected and seemingly uncontrollable jump in insurance costs. Faced with these unprecedented challenges, it is the Risk Managers that the C-Suite are turning to for support. And we fully expect the Risk Management community to embrace this expanding role, with an inevitable fight for talent, acceleration in compensation, and a wave of the mostprogressive Risk Managers emerging as new rockstars in the global economy.
— Anthony Siggers, Co-founder and Head of Solutions Engineering
The world is undergoing a digital transformation. Companies like Uber and Carvana have transformed the traditional way people get a ride or buy a car. The pandemic has only accelerated this trend, and people are increasingly looking for ways to conduct their business digitally.
The insurance industry is no exception to this trend. Insurance consumers have already experienced this growing digitization with online portals, digital payments, and virtual claims handling. However, the industry still lags behind others when it comes to delivering a digital experience, and much of the industry still relies on repetitive data entry and spreadsheets. Insurance professionals have a tremendous opportunity to digitally transform their operations and deliver a better experience for all stakeholders in the insurance lifecycle.
The way businesses, brokers, and insurers interact and engage with one another is often too manual and time-consuming. The industry should look at how others have transformed their operations digitally for better results. By transforming legacy workflows, brokers can spend more time providing the support their customers need, insurers can make better data-driven decisions, and businesses can have greater insights into their portfolios.
— Mike Winterle, Senior Product Marketing Manager, AU, AIC, AINS
Accelerated Maturity of Emerging Risk Quantification Tools
As emerging sources of risk continue to impact corporations, the tools to quantify these risks will steadily mature in 2022 to match the needs of risk managers, brokers, and insurers.
These risks include climate change (specifically the perils exacerbated by climate change) and cyber. Approaches to address these emerging risk sources have existed for the past few years, including scenario-based loss calculation tools, hazard data for use risk screening and rating, and portfolio loss estimation tools. These approaches will need to mature in sophistication and granularity to further bolster their value for risk management purposes.
Companies focused on climate change risk quantification are moving aggressively to help put numbers on their risk at the portfolio and underwriting levels. This includes both established catastrophe modeling firms and newer players in this space, such as Jupiter Intelligence.
Cyber risk is experiencing an increased focus as carriers endeavor to provide coverage for this risk while accurately accounting for it in their pricing and portfolio management processes. Modeling techniques continue to mature in this area, with companies like CyberCube and Guidewire and others taking notable steps forward.
— Phil LeGrone, Director of Product Strategy
Not All Technology Will Survive
Good technology is the future and here to stay—but how many different types of technology? How many logins and slick data systems can one person or company have? People are getting overwhelmed by so many pings and alerts—heightened by a year-plus of covid and continued remote workplace.
The key to success will be which companies can maximize data integration (internally and externally) and have a one-stop-shop that impacts multiple lines of business or groups within the company. For all the teams from asset management, property management, acquisitions, risk management, newly formed/forming ESG teams, and even dedicated climate change teams, data is imperative but only if readily usable, trusted, and able to benefit the company.
And if you have too many systems or try to develop internally (when it’s generally not your core business), well, that could turn into an even more inefficient mess than you started with.
Multipurpose technology with integration via APIs will soar to the top, whereas others will become a distant memory as quickly as they came in.
— Jordan McCarthy, CRE Account Executive
Resiliency Takes Center Stage
Our world’s biggest success of 2021 was evident in the progress we made in our fight against the COVID-19 pandemic (and pandemonium). However, just as borders started reopening across the world and we looked forward to returning to a new normalcy in our daily lives, we have been pushed into yet another battlefront against a new COVID variant.
This latest twist has once again disrupted business plans and reminded us of the hitherto inconspicuous risks that we have to actively account and plan for in our daily lives and work. It is little doubt that risk management and business resiliency plans will now be a mainstay in boardroom discussions and take center stage across entire organizations henceforth.
As the old adage goes, “if you can’t measure it, you can’t improve it”. How has the pandemic evolved your and your firm’s way of assessing risk and enhancing resiliency?
— Alex Chen, Account Manager, Client Development
The Beginnings of Market Efficiency
Market efficiency suggests that, at any given time, prices reflect all available information. No player in the market has an advantage because no one has access to information not already available to everyone else. As a result, prices should respond only to information available in the market. Archipelago is striving to transform the marketplace into one where information is available to all in the insurance value chain, as well as those parties’ ecosystems (upstream, downstream).
With the efficiencies that Archipelago provides around the collection, management, improvement, and sharing of property data, consumers can also find the bandwidth to focus on understanding analogous “outside of property” information—such as ESG, cyber, community, etc. We allow for a more effective and faster means to disseminate information.
Once players understand where their capital has been misplaced based on misinformation and where it can be utilized for a greater purpose, market efficiencies in the insurance value chain will also begin to drive the beginnings of a potential redistribution of the capital.
— Valerie Chen, Senior Director, Account Management
The world’s “climate crisis” is forcing changes in how companies view their environmental impact—striving to reach “net zero”—but will it affect meaningful change to the way that property insurance market operates?
Potentially, yes. That being said, it may not be in an obvious fashion.
Whilst we are seeing an increase in the frequency and severity of weather-related events, the property insurance cycle still typically functions on a 12-month view of the world, which is sometimes viewed as still using historic practices with limited change. It has been noted that over the past few years, these increases in weather events have impacted how certain types of policies and cover are viewed, e.g. some homeowner policies deeming properties as uninsurable due to recent wildfire losses in places like California. However, the market has usually been “backwards-facing” from a pricing perspective with historical events contributing to changes in rates for renewals, rather than forecasting.
Where climate change may affect the industry is through forcing the hands of companies seeking insurance. In the wake of COP26, Lloyd’s of London issued notice that it would ask managing agents operating within the market to no longer provide cover for companies that did not fit certain environmental criteria. The apparent reduction in capacity available for companies with less green footprints, may contribute towards a change in environmental concern at a corporate level through an increased risk of financial loss that would normally be mitigated through purchasing insurance. Then again, the insurance market is a business place, governed by the ultimate goal of financial gain, and while an ask can have best intentions, it isn't a mandate…
— Kishn Thandi, Solutions Engineering
Building Codes: A Need for Resilience
The United States has sustained more than $1.6 trillion in losses due to natural disasters since 1980. This value is expected to increase as we see the continuation of population growth in areas that are susceptible to natural disasters and the results of the impacts stemming from climate change. Strong building codes can help to reduce the losses resulting from natural hazard exposure. FEMA’s recent Building Codes Save: A Nationwide Study of Loss Prevention shows that, of the post-2000 buildings that adopted the International Building Codes, 51% showed losses avoided for seismic, wind, or flood perils.
The Insurance Institute for Business and Home Safety, IBHS, provides information on a three-year cycle on evaluating the building code adoption, enforcement and administration, and contractor licensing practices in the 18 Atlantic and Gulf Coast states vulnerable to hurricanes. The states are rated on a 100-point scale based on their building code program. The results of the 2021 study show that Florida took the top spot followed closely by Virginia and South Carolina. While many states have local adoption of building codes, the following states were considered in the poor category (Georgia, New York, Maine, New Hampshire, Texas, Alabama, Mississippi, and Delaware) due to lack of mandatory statewide code.
Having resilient building codes is one key to reducing potential financial losses from catastrophic events. Recognizing where building codes are strong and when improvements can be made grants the building owner, risk manager, and insurance professional the information they need to assess natural hazard risk and mitigate such losses.
— Erin Ashley, Director of Risk Engineering