Q&A with Dr. Robert Hartwig on Innovation in the Insurance Industry

Digital Transformation - October 2 2019

Robert Hartwig is clinical associate professor of finance and director of the Risk and Uncertainty Management Center at the University of South Carolina’s Darla Moore School of Business. His research focuses on insurance markets and structures, risk management, risk-bearing capital market instruments, the financing of technology risks and venture capital in insurance markets. We sat down with Robert to ask a few questions about how the insurance industry can navigate what he calls an “era of innovation, disruption, and ambiguity.”

Robert, you frequently present to insurance industry management, boards of directors, regulators and legislators. What are the key challenges facing the insurance industry today? What keeps insurance executives up at night?

Insomnia is rampant throughout the C-suites of insurance companies large and small. But atop the list of what keeps insurance executives awake at night are: competition, growth, and technology. Markets remain intensely competitive across the personal and commercial lines space. Overall industry growth is constrained by generally flat rates and a tepid economic environment worldwide. To make matters worse, interest rates are once again falling. Technology is a multi-dimensional concern. Many companies fixate on cost, but implementing new technologies and platforms involves significant execution risk. 

Insurance carriers and brokers collect mountains of data, but they still struggle to gain the insights needed to accurately assess and price risk. If you had to give the industry a report card, how well do insurers manage risk today?

The industry deserves a ‘B.’  Insurers do a reasonably good job of pricing many types of risk for which they possess vast amounts of data—personal auto, homeowners, workers comp, term life insurance, etc., but there is room for improvement.  Insurers are always working to improve the accuracy and efficiency of their risk assessment functions—underwriting and actuarial, primarily—and there’s no question that improvements in computing power and declining data storage costs have helped in this respect. Data mining, data analytics and predictive modeling are all making contributions.

For insurers to earn an ‘A,’ they’ll need to find ways to collect, assimilate and interpret new types and sources of data necessary to insure the risks of the 21st century—data on cyber and climate risk are often discussed. But again, expanding the bounds of the insurable is entirely contingent on the ability to collect, analyze and interpret data.

Most of the available data in the world is unstructured—it’s not neatly arranged in spreadsheets. It’s messy, strewn with errors, incomplete and ambiguous. To harness the power of “real world” data, insurers will increasingly rely on machine learning and artificial intelligence.

This is not some Orwellian view of the future devoid of human input. Rather, human expertise will continue to drive the overall architecture for the underwriting and analytics that take place and will, in the end, determine the feasibility of implementing findings.

You’ve described the current state of the insurance industry as “an era of innovation, disruption, and ambiguity.” Heightened ambiguity must be a hard thing for risk-averse insurance professionals to bear! How are insurers adapting to the unprecedented pace of change we’re seeing today? 

I take solace and inspiration from the fact that the insurance industry has not only survived but thrived through numerous periods of rapid innovation, disruption, and ambiguity. Going back to the 18th century, the industry managed the transition from the era of sails and horsepower to steamships, railways, and the internal combustion engine. Since the dawn of the 20th century, insurers have capitalized on opportunities in energy, telecommunications, aviation, space flight, pharmaceuticals, and much more. The current period of innovation and disruption is already providing enormous opportunities. Within the past few decades, the internet and global digitization have resulted in a multitude of cyber risks that lend themselves to insurance solutions. The threat of climate change demands that more private risk capital be committed, especially given the enormous gap between insured and uninsured losses that exists even today. Rapid innovations in the life sciences and medicine bring with them risks that we cannot fully comprehend, but nevertheless represent the opportunities of the future. This list is endless.

The insurtech revolution – or evolution – is one of the biggest changes facing the insurance industry. How is the industry dealing with technological change and the need to innovate to keep pace with customer expectations?

I have every confidence that the insurance industry will not be left behind in the technology slow lane when it comes to adopting and adapting the many insurtech innovations we see today.

The insurtech phenomenon is a win-win for insurers—it is effectively R&D that is largely financed by venture capitalists who bear the majority of the risk for demonstrating proof of concept.

This allows insurers and reinsurers to make investments in promising areas, eventually adopting (or acquiring) those technologies with the most promise at lower cost, more quickly and with a lower probability of failure than if the R&D investment had been financed internally.

What do you see as the next big breakthrough in insurtech that carriers and brokers need to prepare for?

My view is that insurtech is more evolutionary than revolutionary. This suggests that insurtech is more likely to accelerate or improve upon existing trends. To that end, I think insurtech is moving in three directions:

  1. Improving efficiencies in underwriting and claims
  2. Increasing the potential for automation of underwriting for small business risks
  3. Data acquisition and assimilation from non-tradition sources (e.g., home/business monitoring systems, apps that monitor policyholders—e.g., driving behavior, fitness, physical exertion/location at work, etc.)

Take out your crystal ball: What do you think the insurance industry will look like in 10 years?

Among the biggest changes I expect to take place over the next decade relates to the nature of the relationship between the insurer and the insured. It’s all about interactivity. Historically, insurers’ interaction with their customers was limited, consisting of a singular sale, annual bill payment and the occasional claim. Consumers of the future, especially younger consumers, expect greater interactivity. Fortunately, insurers can create interactivity and value simultaneously. Technology now allows insurers to provide policyholders with real-time (or near real-time) information that can help them reduce risk in their lives while at the same time reducing insurance costs. These opportunities exist in large, traditional insurance lines such as personal and commercial auto and workers compensation to newer coverages including cyber risk. There are many opportunities in the life and health insurance space as well. This two-way interaction represents a broadening and expansion of value between the insurer and the insured. Insurers who successfully meet the challenge of increased customer interactivity will benefit from higher retention rates, growth in market share and enhanced pricing power.


Hartiwg Photo2Robert Hartwig (Ph.D., University of Illinois, 1993) is clinical associate professor of finance and director of the Risk and Uncertainty Management Center at the University of South Carolina’s Darla Moore School of Business. Prior to joining the Darla Moore School of Business, he was president and economist for the Insurance Information Institute in New York and in prior positions worked for Swiss Re, the National Council on Compensation Insurance and the U.S. Consumer Product Safety Commission. He has also served as an adjunct professor at Florida Atlantic University. His professional experience includes expert witness testimony and testimony before numerous congressional and state legislative committees. He holds the Chartered Property Casualty Underwriter (CPCU) credential and speaks frequently in the media on all issues related to insurance markets. You can follow him on Twitter: @Bob_Hartwig.

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