By: Dustin Dumaresq, CFO at Infiniti Insurance Limited
Thank you for reading this post, don't forget to subscribe!Working with third-party vendors can help insurers and brokers unlock operational efficiency and stay agile and responsive to the growing and changing consumer demands as insurance becomes sophisticated.
While there are advantages to working with third-party vendors, there are also some challenges that can arise.
A breach or data leak
The complex nature of the insurance business requires efficient management of personal data. If this is not effectively managed, it can result in breaches and compromise the clients’ personal information.
When working with a third-party vendor, insurers and brokers must develop an integrated risk management framework and put in place the proper infrastructure and processes to manage and secure clients’ data. Any breach or data leak can be potentially devastating to the insured and seriously dent both the insurer’s and broker’s reputations.
The clients entrust us to protect their assets, but one incident of a data breach or service disruption can erode that trust and ruin our reputation, even if the vendor was the one at fault. We must adopt a proactive measure in managing third-party vendors’ risks.
Challenges that arise
The Deloitte Insurance Fraud Report 2023 indicates that the challenge for insurers lies in developing a comprehensive fraud and risk mitigation framework, which includes proactively identifying, assessing, and categorising risks faced by the insurer, and developing appropriate mechanisms to mitigate such risks.
Fraudulent activities committed within or against the insurer can adversely affect its financial resilience, as well as damage customer experience. Insurers must invest considerable resources to mitigate vulnerabilities across data security.
In the Deloitte Insurance Fraud Survey 2023, respondents indicated that fraud was on the rise, and they were witnessing the emergence of new fraud trends while traditional frauds continued to prevail. More than 60% of the respondents surveyed highlighted that they wanted to increase investments in fraud prevention and response slightly.
This condition can be managed by overcoming a siloed approach when managing the risks, by developing an integrated fraud management framework, built on a robust foundation of a well-articulated strategy, and aligned with the operating model. Integrating all divisions of the business and operations such as compliance, legal, underwriting and claims management departments is critical.
In addition, insurers should actively monitor the performance and trends of the business provided by brokers to detect any indication of intermediary fraud, including conducting regular fraud-focused audits. The insurer needs to analyse different types of risks that it could face from all its third-party vendors based on the business structure and the complexity of its operations.
Using technology to offset scarce skills
As technology, particularly Artificial Intelligence (AI), robotics, Big Data, digitisation, blockchain, predictive analytics and machine learning continue to disrupt the industry, insurers face significant challenges in acquiring the necessary skills and capabilities to maintain operational resilience. The demand for specialised skills is constantly evolving, while experienced professionals are approaching retirement age, creating an exodus of immense expertise in the industry.
Automated underwriting is common in the developed world, and insurers in emerging markets have also started adopting it. In the survey that looked into the status of skills in the insurance industry focusing on short-term insurance, conducted by Inseta in 2019, it was reported that the insurers that can attract or retain highly skilled underwriters and build sophisticated predictive modelling would have a competitive advantage in the industry.
Technology has been central to building solid relationships and assisting different parties to collaborate efficiently. As an industry, we need to invest more in digital technology to enhance our relationship with all the stakeholders we work with. It is a leg of the partnership value chain that we as insurers need to develop and expand on to benefit not only ourselves but also our brokers and our mutual clients. They are, after all, part of the Treating Customers Fairly (TCF) partnership value chain.
