For insurance to find its way, it needs a compass

These episodes often become turning points for a particular field affecting it for years or even decades to come. They are seen as system shocks because an unprecedented event drives home the point that the old rules no longer apply.

Famous ones might include the attack on Pearl Harbor by the Japanese Imperial Navy which showed with brutal clarity that geographical distance offered less protection to military forces than thought.

The attack was revolutionary because it used a technology – a large fleet of aircraft carriers – in a way that was new, ushering in a type of tactical thinking around power projection that dominated naval strategy into the 21st century and relegating old ideas to the dustbin.

Many such moments are based around technology and capabilities. The internal combustion engine changed how we travel and shaped modern cities, towns and the spaces between them. When the iPad was released (just 12 years ago!) people knew by merely touching one for the first time that a revolution in information packaging, use, and consumption was on our doorstep – the future was literally in your hands and the present suddenly quirky and inconvenient.

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But there are also moments that can perhaps be called “JFK moments” – an event that remains etched in collective memory due to the unforgettable nature of something as momentous as a presidential assassination, but that from the vantage point of decades later does not have the same historical trajectory altering repercussions as a Pearl Harbor or the invention of the car.

Looking back on the global pandemic, it seems very clear that we should be asking ourselves if we are in the middle of another paradigm shift that will similarly have repercussions years or even decades from now.

At the moment, there are more questions than answers because, as we have all learned very well, predicting the future is practically impossible. But with so much riding on being able to accurately assess risk it is important that the insurance business ask itself the right questions, take stock of where we might be in the arc of history and start to think about whether the current state of the industry truly fits with the profoundly changed society we now inhabit.

Both Pearl Harbor events and JFK events have many pages devoted to them in the history books but only one type of shock exerts influence on human thinking and behaviour in a particular field more than half a century later.

For public health experts and epidemiologists, a deadly new virus that has reached every corner of the globe is almost certainly a Pearl Harbor event. But what about for the rest of us?

The changing parameters of risk

Accident and health insurance and how it can deal with the tectonic shifts currently occurring in society can be seen as both a reflection and the beginnings of a remedy to some of the problems that are affecting businesses in 2022.

Corporate travel, workplace environments, sickness and injury are all affected.

Old hands at insurers ought to be asking which among the ‘traditional’ risks are still relevant for these areas and which new, previously ‘in-theory’ risks have now come into play due to changes in human behaviour and work patterns since 2019.

With people working from home, where should the line be drawn in terms of what to cover in terms of an accident? Companies can’t fully control employee home environments, so do they have an element of responsibility to provide an ergonomically sound office chair, a warm room temperature to work in during the depths of winter, or even a clear and unimpeded path from study to bathroom when kids are playing in the hallway?

The Nippon Telegraph and Telephone Corporation, commonly known as NTT, recently announced that 30,000 of its workers could work at home indefinitely with the company paying for any necessary trips to the office, including by plane. The only proviso is that the employee must continue to reside somewhere in Japan. The firm is shuttering or downsizing many of its offices with no intention of ever returning.

A Fortune 500 company and the fourth largest telecommunications company in the world by revenue, NTT is contemplating expanding the scheme to more than 100,000 employees at a later stage.

While not all companies are embracing WFH as a permanent fixture, insurers will need to deal with those that do and work out the mountain of details involved with the new risks and what should be covered.

Another sector clearly affected is corporate travel.

Corporate travel and travel in general were already under the ongoing influence of historical events before COVID-19 struck. The terrorist attacks using commercial aircraft as weapons in 2001 changed the travel experience and related insurance in ways that continue to be felt today. September 11 was shocking as a spectacle but its significance for society lay in the group realisation that non-state actors had the means and will to cause the most powerful nations and economies in the world to come to a complete stop in a way no-one knew was possible.

Many people avoided travel altogether as an initial response but the procedures around commercial travel by any method (not just plane) are still with us today decades after it became devastatingly clear that flying involved a dangerous new risk factor.

In the years leading up to 2020, corporate travel insurance was facing increasing challenges with around three in five claims a result of a leisure trip under a corporate travel portfolio. There are concerns among top insurers now that the new reality for corporate travel and the way it is insured is similarly out of phase with the situation on the ground.

Remediating the book on things like corporate travel or accidents at work is a task that will require both brokers and their customers to deal with basic conceptual issues around very idea of insurance that speak to the Pearl Harbor type of repercussions continuing to reverberate in the world of paid employment and beyond.

Another example is health insurance as expectations need to reflect new risk profiles such as the delaying of elective surgeries when hospitals are under pressure, either by the health service itself or ‘voluntarily’ by the insured. Mental health issues too require more consideration as the loss of social interaction in physical workplaces affects some people more than others.

The spectrum of what is captured by some types of insurance has suddenly ballooned as industry and clients alike struggle to juggle the broader risks they face after COVID. With many of these risk parameters still yet to achieve any kind of equilibrium, the role insurance ought to play in this strange new world is hard to pin down conceptually, let alone quantify.

A search for new bearings

Perhaps a clue for how to proceed can be found in another branch of insurance facing extreme change. Ten years ago, the impact of climate events on property and SMEs was an afterthought in the calculations of risk engineers assessing property outside of Northern Australia.

But as the frequency of natural disasters slowly pushed further south, sophisticated systems to assess the profiles of properties were designed to analyse risk down to the level of location on a given street.

Do other types of insurance like corporate travel need to employ similar methods where risk profiles are essentially bespoke depending on factors that go beyond mere country or personal profile to include predictive algorithms for circulating diseases, public health measures or level of mask use at destination point?

The classic science fiction Foundation series by Isaac Asimov talks about a new algorithmic science where events and the behaviour of large populations can be predicted in probabilistic terms, allowing experts to accurately map out the fates of societies many years in the future.

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Such an idea is risk engineering taken to its logical acme point. Given the unprecedented amount of economic and social cost that has occurred in the last two years, and the lack of clarity on how to approach types of insurance once considered relatively simple, there is an argument that developing the embryo of such a predictive capability is crucially important to the future social utility of travel, accident and health insurance.

The world’s most powerful supercomputer – the Fugaku supercomputer – was created with an “application-first philosophy,” meaning that its exclusive purpose is to tackle real-world practical challenges such as the impact of climate change. With enough accurate data, some of the challenges facing the insurance industry, from human behaviour in relation to the workplace to the as-yet unknown myriad of future risks that might upset corporate travel could one day be calculated and measured.

The hope should be that if a risk no-one is even aware of yet can be measured accurately, then it can also be insured against.

Sure, the level of data required to make meaningful assessments on the direction of human society in relation to historical shocks is probably still just an actuary’s dream. But it is a goal worth envisaging and one that, if set, will no doubt accrue a host of incidental dividends as it is pursued.

Maybe we could call it the Apollo Program for insurance.

Without a purposeful reassessment of how the last few years of upheaval have skewed historical trajectories we will be fated to stumble blindly into the next shock with tools optimised for an insurance world that exists only in the past.

And that’s no way to approach a moon shot.

This article was authored by a senior manager at a global insurance firm who preferred to stay anonymous