CEO of ACORD talks about global connections, AI, and the risk managers who are “making it happen”
CEO of the Association for Cooperative Operations Research and Development (ACORD) Bill Pieroni has been waiting 30 years to be asked a certain question. Pieroni said that it was a very important question that no one had ever asked.
That is, until he sat down with the Corporate Risk channel of Insurance Business. This question is about risk managers and what they do in a field that is always changing. In a chat, Pieroni said that in a world ruled by capitalism and “the invisible hand,” it’s up to the risk managers to decide where this insurance ship will go next.
“In a way, what you’re really asking is: what part does the customer play in all of this? And too often, people don’t think about the customer and think that the buyer is the risk manager. “What a great and important question!” said Pieroni. “Digitally mature companies are growing faster and making more money than those that aren’t. Why? Risk managers are the ones who make this happen. They’re the ones who are making that happen. Why don’t digital laggards grow as fast as the rest? The reason is that risk managers don’t choose them. It’s not magic, it’s because of that.”
This point about digitalization comes from ACORD’s own research. Pieroni said that 25% of the best insurers in the world are found in ACORD’s yearly study of insurers around the world. Their relatively high levels of digital maturity are the same across lines, businesses, and specialisations. As Pieroni put it, “they’re in the two highest categories out of the five levels we identified.”
“Then there are people who are stuck in the past. That’s about 15 percent. Then there are people who don’t keep up with technology. Pieroni said, “That’s another 10%.” “There are companies out there who are very digitalized and make use of seamless data transfer. But at the other end of the spectrum, there are about the same number of systems that are old, not very useful, and require a lot of human work.
Adding value to insurance, both during
ACORD has been creating data standards around the definition of key insurance elements for more than 50 years. These standards have helped support 1200 standardised transaction types, which include all the important parts of the insurance machine: brokers, agents, carriers, reinsurers, regulatory bodies, insureds, and their risk managers.
“Think of it as standard definitions for things like first report of loss, verification of coverage, pre-bind policies, underwriting rules, and claims. These can be used by each stakeholder or between them in messages. “In general, it has to do with data, the gathering, synthesis, and use of data, which is the lifeblood of our industry,” Pieroni said.
And what a lifeblood it is! Data has become one of, if not the most important part of the business, especially now that generative artificial intelligence (AI) is starting to be used. ACORD is able to help the insurance industry as a whole because of this data and the global connections that make it possible for it to be shared from one end of the world to the other.
“I think ACORD not only adds a lot of value to each stakeholder, but also a lot of value between them,” said Pieroni. “Think about a broker who binds a policy, whether it’s for a personal or a business line. They have to send that information to a number of main carriers to get bids. Having a uniform way to gather and share this information really makes a broker much more efficient and effective.
Even though Pieroni says that the organization’s main value is its efficiency and effectiveness, he also says that the only value that counts is the one on the other end of the transaction.
“Isn’t the insured the only person who really counts here? Is the answer better for the insured? Are they getting a better range of choices for risk transfer at a fair price?” Pieroni said.
An “uneven” future and a “time machine” for the pandemic.
Pieroni said that the way the future is “unevenly distributed” makes the present situation of global connectivity unique. In ACORD’s whitepaper, out of the more than 12,000 providers in the world, the top 200 make up 63% of the global premium. The spread isn’t even, but it’s easy to see how digitalization has helped the best of the best.
“I think the future is here, but it’s not equally spread out,” said Pieroni. “It’s interesting that our study shows that carriers with high levels of digital maturity are growing much faster than the rest of the business. They have much better combined ratios, their customer happiness is much higher, and their returns to shareholders are much higher. We can see that more digital maturity leads to better growth, market share, economics, and happiness among stakeholders.
Pieroni also said that the world pandemic sped up this future in some ways. Before COVID, the statistics from ACORD showed that digital laggards were doing pretty well. Pieroni said that they “had reasonable profitability, reasonable growth, and reasonable shareholder returns.”
“But I think of the pandemic as a time machine, because it sped up all the forces that were already changing the business. I think the business thought it had a lot of time to digitise and come up with standards, but the pandemic sped up everything a lot,” he said.
Everything has been turned upside down by this big change, and now those who aren’t as tech-savvy are in a slump. Because legacy-powered companies made less money, grew more slowly, and had lower returns on their shares, they were at the bottom of ACORD’s whitepaper. But Pieroni said that not being digitalized has other problems that have nothing to do with how fast an insurance company’s system can be.
“I think that people, like underwriters and claims managers, are the main source of benefit, no matter how important technology and standards are. “It’s the people,” said Pieroni. “You will be at a loss if you can’t find and keep people with a lot of skills. In most places around the world, the average age of people who work in the insurance business is over 50. Millions of people will retire over the next ten years and certainly over the next twenty years in most of the world’s big insurance markets.
Pieroni said that over the next ten years, the business will have a lot more older people who are close to retiring. This is because most insurance workers are over the age of 50 in most parts of the world. It’s also not easy to get good people to work for you, and if you’re not technologically advanced, you’ll have a hard time getting their attention.
“Most people who graduate from college today don’t want to work in insurance. Insurance is always at the bottom of the list. “However, if you’re a technology professional, an actuary, a claims professional, a broker, or an agent, you’ll want to work for a company with much higher levels of digital maturity,” Pieroni said.
“You might not believe it, but my biggest worry is that you won’t be able to bring in the right talent, like technical talent and subject expertise in underwriting, actuaries, and claims. That will be the real problem. Even if you throw money at the technology, how do you deal with the fact that you didn’t draw talent because you didn’t realise that was a real problem? I think that as low as insurance ranks, companies with systems from the last generation are not the best places to work, and they don’t get the best people,” he said.
A problem for insurance tech
Even though technology is important, Pieroni said that where you use it is just as important. It is important for this business to get past the “confusion and hype” and focus on the things that will really matter.
“I want to make it simple,” Pieroni said. “Seventy percent of the money paid in premiums is spent on claims. About 10 to 15% of the 70% is used to make changes to a claim, and the rest is used to pay the claim. The other 30% of premium money goes to the screening process.”
In light of this, Pieroni talked about the current state of insurtech and how, at its core, it is also confused about what really counts. He says that less than 6% of the money invested in insurtech goes to insurance and claims, even though these are the only things that cost money. In order to improve efficiency, he told the industry to look at cases and make the process of deciding on them and paying them out better. He said that if we did this, we would have already paid for a big chunk of the fee.
“Then, think about the cost of insurance. That’s about 10% for commissions. Agents and dealers add a lot of value, so you want to pay them. The government gets another 3%. So, let’s say that half of the 30% underwriting cost goes to agents, brokers, and taxes. That still leaves 15% for purchase and other costs,” Pieroni said. “The first thing I’d work on would be claims, which take up 70% of premium dollars. After that, I’d improve the underwriting process to deal with purchase and general costs. I think it’s that easy; just look at the income statement and balance sheet to see where the money is.
“So, you want to have a strong value offering for any insurtechs or tech startups? Claims. If you don’t have claims expertise? Underwriting. If you don’t work to make claims and underwriting more efficient or effective, you’re not meeting the needs of the business. He said, “If you don’t make these carriers more efficient and effective, you won’t be able to get them to buy your products and make them more likely to be a customer.”
About AI, or “applied statistics”
Pieroni had strong feelings about the start of useful and meta-shifting generative AI, just like the rest of the business. He said that it is “very real” and that it will have a “transformative effect” on the business. Still, he had some problems with how it is being seen right now.
“I don’t want to make light of how important AI is, because, as I’ve already said, it’s going to change our business, but AI is just statistics put to use. It’s maths put to use’, Pieroni said. “I think there is a lot of misunderstanding about how smart it is and whether or not it will replace people. Simply put, it will make people better. It will make people smarter and faster, and it will have a bigger effect on customers, owners, and carriers. It’s going to change things.”
Pieroni said that there has been a lot of talk about it, and he wished that it wasn’t seen as something to be afraid of. Since it was invented a year ago, generative AI has been at the centre of a lot of arguments about ethics and how it might change the job market in a few years. Even Hollywood is having a discussion about this right now, as the ongoing strike calls for AI to be used in an ethical way to protect actors from having their digital likeness used for profit. But Pieroni is sure that AI, or “applied statistics” as he likes to call it, is just a tool that will help the person who uses it.
“There’s a lot of talk about it, and it is a big deal, but I don’t want people to think of it as some scary tool that will kill everyone. “The tool we’re using to record this interview, the headset you’re wearing, and the computer you’re going to write this on won’t replace you. Instead, they’ll help you do your job better,” Pieroni said.
He said, “The term ‘artificial intelligence’ was made up in 1956, and I wish they hadn’t called it that.” “I wish they had called it applied statistics. Even if you look at tools like ChatGPT, they are just big models of how language works and nothing more. Random, non-deterministic models amaze me, but they don’t scare me. In the same way, I feel a lot safer when my car drives itself than when I do. I have a lot more faith in it. So, AI doesn’t scare me.”
Pieroni said again that it all comes down to making people more productive, and AI is something that can help with this. AI will make our lives much easier, just like a word processor for a writer, a jackhammer for a building worker, and other technologies have done. But, just like you can’t unscramble an egg, Pieroni did admit that there was a time when the technology became widely available to everyone, which changed the way we work for good.
“Will it affect work and roles? You can count on it, but it doesn’t scare me. It’s a real thing, and it can change things, but it’s not scary technology from science fiction. He said, “It’s just maths.”
“Know what part you play in Darwinian evolution.”
The underinsurance gap is still one of the biggest problems in the business. For someone with as much experience as Pieroni, solving this problem means seeing a chance, which is a key trait for a true believer in capitalism, which he said he was.
When you look at things like emerging markets, Pieroni said, “Let’s let carriers see the opportunity.” “Stability is something that both brokers and carriers like. Some regulations may worry the business, but they give them a sense of security. With it, they know the rules and know where they will be responsible.”
Pieroni said that it all starts with a chance and regulators who know how important insurance is to economies, especially in emerging markets. But he also told the business world not to look at emerging countries through rose-colored glasses.
“What I find interesting is that we did a study and found that over the last 10 years, there has been more growth in mature markets and higher levels of profitability in mature markets than in emerging markets,” Pieroni said. “I know that people say, “There are lots of opportunities in emerging countries,” even though profits haven’t been as good as they could be. In response to your point, I would say that there has been more underinsurance risk in emerging countries over the past ten years.”
A good risk manager needs to have this level of insight, and Pieroni brought it back to that age-old question he has been waiting for for the last 30 years.
He said, “I think risk managers should know who they’re buying from, what their balance sheet looks like, and how well they can pay claims.” “A smart risk manager doesn’t want the lowest price; they want the right price. I can’t buy cheap shoes because they are, in a way, too expensive. They fall apart and hurt my feet, and in the long run, it will cost me more.”
Pieroni claimed that a smart risk manager can never afford to go with the cheapest option. It is because of this healthy way of thinking that the industry is in such an uncertain place right now. Despite this, he also said that the industry was going through a “Darwinian evolution.” In the end, the industry will become more valuable through the process of natural selection as it goes through this evolution.
“So, my advice would be to understand your part in the Darwinian evolution of our industry and to continue to be smart, careful buyers of risk transfer mechanisms. Great question, but no one has ever asked me that. “I’ve been itching to say that,” Pieroni said.
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