A new report from the International Underwriting Association (IUA) and Airmic is driving the insurance market towards outcomes-based policy structures to close the growing protection gap.
The report is the result of a series of roundtables held with Airmic and IUA members, with KPMG serving as thought leadership partner.
It believes traditional product line underwriting is increasingly inconsistent with how large organizations actually experience risk, particularly in areas where multiple risks are concentrated such as data center failures and supply chain disruptions.
The report makes a number of recommendations aimed at closing the protection gap through structural changes to the way risk is assessed, priced and transferred, including establishing pilot insurance structures around clear “outcomes” rather than individual risks, while reforming exclusion designs and wording stress tests for loss scenarios.
“The most consistent issue raised by large buyers is that insurance is built around product lines rather than around the outcomes they need,” the joint report explains.
The joint report aims to address these challenges and make recommendations to reduce and potentially close the insurance protection gap, including reviewing how policy exclusions are finalized for major business categories and developing new ways to test wording for loss scenarios.
Tom Hughes, Director of Underwriting at IUA, commented: “There is consensus among underwriters and insurance buyers, particularly large organizations, that the protection gap is real, structural and growing.
“Both sides want to have different conversations, and the right conversations are key to ensuring the long-term value of the insurance industry.
“IUA and Airmic will work together to promote a new approach that enhances communication and knowledge sharing.
“Better understanding of customers and risk profiles is in everyone’s interest and will lead to better pricing, fewer disputes and longer-term relationships.”
Diane Maxwell, CEO of Airmic, said: “The insurance industry is facing a growing protection gap as organizations face an unprecedented convergence of emerging risks.
“They are creating risks that cannot be fully addressed by existing products, distribution channels and capital structures. It is in the commercial interest of the market to better understand customer risk profiles, resulting in better pricing and better relationships.”
