The Economist - USA (2019-07-20)

TheEconomistJuly 20th 2019 59

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very morning, from a room in Bir-

mingham, some of the world’s largest

firms are briefed by phone on the weather

in store. As continents, arrows and weather

fronts flicker across their screens, meteor-

ologists at The Weather Company (twc)

help British grocers decide whether to

stock soups or salads, and Chinese energy

firms when to operate wind turbines. Yet

such sessions are getting rarer. Computed

by 172 models crunching 400 terabytes of

data—33 times the amount Twitter stores

every 24 hours—most of twc’s 25bn daily

forecasts now feed directly into customers’

computer systems.

Big data has turned weather into a big

business. twc, which was bought by ibm in

2016, serves governments, media channels

and 40% of the world’s airlines. But many

property insurers, whose fortunes rely on

forecasting climate-induced losses, are

still learning how to use the information,

says Leon Brown of twc. Their clueless-

ness is symptomatic of a problem for all in-

surance lines, including casualty, life and

health. Reinsurance firms (which insure

the insurers) and Asian insurance champi-

ons are almost the only innovators in an in-

dustry that is moving at a glacial pace.

Meanwhile the risks insurers are meant

to cover are becoming more severe and un-

predictable. Since the 1980s average annual

losses from natural disasters have more

than sextupled in real terms (see chart on

next page). Other risks are variations on old

themes, such as pandemics or the fallout

from increasing protectionism. And new

ones have emerged. Ageing populations

push up health-care costs. Cyber-attacks

can shut power plants, paralyse firms and

siphon fortunes from banks’ coffers.

Insurable assets are becoming harder to

value and protect, too. In 2018 “tangibles”,

such as buildings and equipment, account-

ed for just 16% of the value of the s&p500.

“Intangibles”, such as intellectual property

and reputation, accounted for the other

84%. Meanwhile insurers’ products and

processes are losing touch with 21st-cen-

tury life, from the way populations work to

the way they drive. A generation born digi-

tal expects speed and style, which do not

come naturally to the centuries-old trade.

Insurers say they have read the memo.

axa, the world’s second-largest by premi-

ums written, has earmarked millions for

tech upgrades and designing services that

complement its policies, says Guillaume

Borie, its innovation chief. But the sector

comes second to last in an innovation

ranking by bcg, a consultancy. No insurer

ranks among the world’s top 1,000 public

companies by amount invested in research

and development. Insurers allocate an av-

erage of 3.6% of their revenue to comput-

ing technology—about half the share that

is typical for banks. In a study of 500 inno-

vation topics across 250 firms Ninety, a

consultancy, finds that many insurers are

working on the same narrow set of ideas.

Some of the noisiest, such as blockchain,

are the least productive.

Digital entrepreneurs have spied an

opening. The first quarter of 2019 saw a re-

cord 85 “insurtech” deals totalling $1.42bn,

according to Willis Towers Watson, a bro-

ker. Some focus on the consumer, aiming

to simplify quotations, make policies

clearer and develop snazzy apps. Some

seek to make internal processes cheaper,

faster and fairer, from pricing risks to pay-

ing compensation. The most ambitious

craft policies that insure against new

threats, match modern lifestyles or do

more than just make payouts.

Slice, a startup in New York, offers poli-

cies to flat- or ride-sharers that cover single

items for a few days. Brooklyn-based Trupo

provides disability insurance to “gig” work-

ers, from makeup artists to Uber drivers.

Bought by Many, a British startup, caters to

Innovation in insurance

Run for cover

BIRMINGHAM, ZURICH AND LONDON

The insurance industry is stuck in the 20th century. That leaves swathes of the

economy dangerously unprotected

Finance & economics

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