New CFC innovation facility seeks ‘uncomfortable risks'
Head of innovation, George Beattie, says new products are needed to address a growing protection gap
New products will initially be put through a ‘test phase’ with small limits and a limited number of policies to control downside risk and establish whether they are a good market fit
CFC Underwriting’s innovation binder is looking for risks that are too “uncomfortable” for other underwriters, its head of innovation said.
Speaking to Insurance Day, George Beattie said the facility would take on risks that others might pass on because they are perceived as being too dangerous, unknown or because there is too much data scarcity.
“We're looking at ideas that are defined as new because of four reasons: the product is new, meaning the actual insurance product is new; the target market is new; the distribution angle is new; or the technology is new,” Beattie said.
He continued: “Another way you can view it is: how uncomfortable does it make a conventional insurer or a broker? The more uncomfortable it makes them, the better a fit it is with my team.”
The specialty managing general agent announced the binder earlier this week. Led by CFC’s syndicate 1988, the innovation facility will develop and underwrite products under Lloyd’s "ICX" innovation risk code to create insurance products for emerging risks not yet addressed by the market.
Over the years, the insurance industry has been catering for a diminishing proportion of GDP, and new products are needed to address this growing protection gap, said Beattie. Underwriters have “become quite good at tinkering with existing products, adding on different attributes offering existing products into new industries in adding in consultancy," he said. To arrest that decline, however, "we can't just carry on tinkering with existing products", Beattie added.
One area of focus will be providing new insurance products for intangible business assets, as much of the market is still focused on fixed assets such as property or machinery, Beattie said. “This is all important stuff, but in the past 10 to 20 years the proportion of company value that is made up of intangible assets has grown to be the majority.” This could include things like intellectual property, trade secrets and digital assets.
The binder will initially put new products through a “test phase” with small limits and limited numbers of policies to control downside risk and establish whether they are a good market fit. After the test phase, CFC will return to its capacity supporters with the data and decide on whether to scale. “Scaling the product might look like a bit more limit per policy, it might look like a larger aggregate deploy on the initiative as a whole, but it's very structured approach,” he said.
The facility already has a “robust pipeline” of both near- and longer-term projects. “Some of that work might look like innovating quite close to the core, taking products that we know and love and using new technology or using new distribution theory to get them to new markets. Other things we're looking at look very standout and extremely new, and represent really big, probably multi-year efforts,” Beattie said.
