Learning from the Past to Improve the Insurance Industry
Matthias Weber and I stumbled across each other last year and since then have conducted an ongoing discussion about insurance.
He has a PhD in Physics from the Swiss Federal Institute of Technology (ETH), and the unique insurance experience of being Swiss Re’s Group Chief Underwriting Officer; combined with now investing, advising and being a board member of leading insurtech companies. I have the honor of being a director at Ahoy! Insurance where Matthias is an advisor and investor.
His perspectives on insurance are a combination of science and art, new world, and old world – and inspiration on how to learn from the past to overcome future challenges, achieve opportunities, and improve insurance for both insurers and insureds.
I trust you will enjoy reading this interview as much as I enjoyed speaking with Matthias.
A Quote from Matthias
“Legacy IT infrastructures are fine for managing liabilities from the near and far past – but prevent insurers from providing the agile and digital consumer experience that is required today. Addressing any of these issues is a great opportunity for an incumbent insurer or insurtech company to improve insurance products and client experiences while achieving attractive financial returns.”
David Schapiro (DS): Could you please tell us a bit about yourself and your career?
Matthias Weber (MW): I am a Swiss and US national, married to my wife Laura, and the proud father of two boys, Alex and Nico.
Most of my career has been at Swiss Re, holding various positions in the US and Switzerland. I had the honor of being part of the team that developed and issued the first insurance-linked security (ILS) at Swiss Re in 1997.
In 2017 I retired as Swiss Re’s Group Chief Underwriting Officer. Since leaving Swiss Re I have been involved in several insurance/insurtech initiatives – as a Director at Next Insurance US Company and CyberCube; as an Advisor to kWh Analytics, Vero Intelligence, and Ahoy! Insurance; and as a Venture Partner at Mighty Capital.
DS: You have been involved in insurance for close to 30 years, how did your insurance journey begin?
MW: When finishing my Ph.D. thesis, I felt I wanted to leave academia and do something that more directly impacted the lives of people. At that time, Swiss Re was looking for a scientist who was willing to become a hurricane specialist. I applied and got the job.
DS: In our discussions, you touched on the important value insurance has for our society – could you please elaborate?
MW: I have always seen insurance as making society more resilient and enabling economic growth. I will never forget a conversation I had with my son Alex when he was approximately 5 years old.
Alex asked me “what do you do at work”? I responded with “picture 1,000 families, each family with a house, one house burns down, the other 999 families pay for a new house, and I help arrange this”. Alex’s simple and clear response was “that is nice of you” – a five-year-old way of expressing insurance’s important value proposition to society.
DS: With this important value proposition why are insurance companies often viewed as a “necessary evil” in the consumer’s mind?
MW: Isn’t it much more fun to daydream about positive experiences, creative ways to build something, or opportunities the future might bring? Most people are attracted by such positive thoughts. In contrast, thinking about insurance requires imagining what could go wrong in life. Is it necessary to do so? Absolutely! Is it pleasant or exciting? Not really! Hence the view of a “necessary evil”. However, this does not mean that insurance is perfect. Some problems can – and should – be fixed.
DS: What are some of the fundamental problems which result in opportunities for innovative insurance and insurtech companies?
MW: One of the key problems is that insurance premiums are often too high, primarily due to high frictional costs across the whole insurance value chain. In addition, there are unjustified claims that further increase the price of insurance to consumers and businesses. And sometimes good risks subsidize bad risks which may lead to anti-selection and high premiums for the good risks.
The other key issue is centered around the client experience: insurers tend to focus on risks rather than insureds. Some insurance products are complicated. Policy wordings are often complex and difficult for consumers and business clients to understand. Insurance products are not always tailored to specific client needs, and quite frankly sometimes even barely make sense for the policyholders. In addition, some insurers are managing their policies with robust IT systems that have been working for decades but are now old and rigid. Such legacy IT infrastructures are fine for managing liabilities from the near and far past – but prevent insurers from providing the agile and digital consumer experience that is required today.Addressing any of these issues is a great opportunity for an incumbent insurer or insurtech company to improve insurance products and client experiences while achieving attractive financial returns.
DS: Insurance is based on using historic data to predict risk. What do you see as the key challenge when deriving learnings from data?
MW: Insights from data are typically meant to be relevant for the future, e.g., the risk associated with policies that cover losses over the next 12 months.
However, data reflects the past, and the past is not always a good predictor for the future. Examples include the impact of climate change on weather events, pandemics, or cyber-attacks. This transition from the past to the future is very important, but it can be a formidable challenge. It requires a combination of powerful analytics and – what sometimes gets forgotten – human judgment and common sense.
DS: Insurance is a regulated and competitive industry that requires transparency of risk models, could you please elaborate on this ongoing challenge?
MW: This is a story of potentially misaligned interests. Third-party providers of risk assessment analytics want to protect their IP to maintain a competitive advantage, but that hides what is inside their model. Their clients (insurers) do not want to use a black-box model as it feels like outsourcing a core competency. Regarding this question, I side with the clients. Their need for transparency is justified and ubiquitous. This is for instance why Oasis, an open-source modeling platform, is backed by many of the large global insurers, reinsurers, and reinsurance intermediaries.
DS: Could you elaborate on the importance of corporate governance and regulation in insurance and if/how it could potentially curb innovation?
MW: One of the beauties and challenges in insurance is the balance between innovation, governance, and regulation. I believe that good corporate governance has a positive long-term impact without limiting innovation, as it provides a culture that reduces risk, increases trust with investors, and is required and expected by insurance clients.Data in insurance can be very sensitive – from the whereabouts of somebody’s car over a score describing an individual’s likelihood of having committed insurance fraud to health and financial data. That’s why there is regulation that addresses both data privacy and data security.
DS: Maintaining data privacy and data security are key in insurance, how do innovative insurers and insurtechs address this?
MW: This is a key issue in insurance. The fact is that there are many regulations around: GDPR, CCPA, HIPAA to name a few, and more will be added in the future to adapt to the dynamics of our world. These regulations are often not aligned, nor mutually exclusive. Dealing with data-related regulations is not easy, to say the least.Having said that, I am impressed by how the industry, new and old, is addressing the situation. Innovative insurance executives and Insurtech entrepreneurs are generally good role models for dealing with data and regulations. They know that without data they would not be successful, and their companies would not exist. And therefore, they ensure that their data is safe, trustworthy, and does not get misused.
DS: Are there any final thoughts you would like to share?
MW: Besides data and analytics, don’t forget the importance of human judgment and common sense!
Matthias Weber – Bio
Matthias Weber has close to 30 years of experience in insurance and a strong interest in insurtech. He served as Group Chief Underwriting Officer and member of the Group Executive Committee of Swiss Re. He is currently a Board Member of Next Insurance US Company and CyberCube, an Advisor to kWh Analytics, Vero Intelligence, and Ahoy! Insurance, and a Venture Partner at Mighty Capital. Matthias holds a Ph.D. in Physics from the Swiss Federal Institute of Technology (ETH) in Zurich, Switzerland.