Tom Graham & Iryna Chekanava: Chaucer: How insurers decide which innovations succeed (411)

Speaker A: Welcome to this week's Instec podcast. This week, I'm pleased to say, we're joined by team from Chaucer. We don't have enough insurers. On, uh, our podcast, I've got Tom Graham and Irina Chikanava from Chaucer. Welcome both.

Speaker B: Thank you.

Speaker C: Thank you very much. Good to be here.

Speaker A: Tom, you're the head of partnerships and innovation at Chaucer. Tell us what that job involves.

Speaker C: So, firstly, thank you for having us on. Very nice to be here. We've got two elements to that quite self, evidently, the partnership and the innovation. Our, uh, partnership team look primarily at three areas of commercial opportunity. That's the facilities, smart follow, collective commoditisation, parts of the market. We look at large cost class plays with selected clients. We do a small number of large deals with people who bring accretive business to Chaucer in return for our stable and secure capacity. And then we look at areas of alternate business to Chaucer. So that's either areas that we don't traditionally play in or areas that you wouldn't normally find. Specialty insurers like Chaucer, uh, active in the innovation team, is better represented by arena, but they are one of the market's leading innovation underwriting units. So new product lines, new lines to old products. And they're the crazy professors at Chaucer.

Speaker A: Irina, have you ever been called a crazy professor before?

Speaker B: No, first time. Mad scientist.

Speaker A: So your job title is Senior Innovation Underwriter at Chaucer, Uh, part of Tom's team. What's your mandate? Or put another way, what comes to you that doesn't go through the traditional channels? Through to the class underwriters?

Speaker B: Yeah. So I'll start probably quite generically at Chaucer. Um, innovation is all about new insurance products and underwriting. Innovation and also cultivating the environment in the business that makes it possible. So in its purest form, it's about testing and introducing new products into the business. So in terms of the appetite, we will look at anything that sits outside of everyone's underwriting box, but still within Chaucer's strategy. So oftentimes we will still work with a lot of underwriters because of our new insurance products. We'll have elements of or resemblance to existing ones. And because it's a combination of truly brand new categories and existing lines done differently, you will see us collaborating across the business. So it's quite a broad remit. But in terms of, uh, new products and new product verticals, we do see them occurring now and then and say AI liability will be a good example these days. Carbon credits perhaps would be a good example from the past. And Chaucer has backed both of those verticals by working with innovation partners. So yeah, new insurance products and m old ones done differently.

Speaker A: There was a moment in the sort of pomp of insurtech where the new products were popping up all the time. You gave some examples. But there was also, you know, ensuring IVF treatments and a lot more in the climate space. Am I right in saying that there's less sort of new product ideas in the sense of filling a protection gap, like products that never existed before but you're still very busy, so presumably other forms of product they're innovating around.

Speaker B: Yeah, so we do put both of those in our remit. I have to agree. So we're seeing less what we call like new product verticals or product categories. I think it's also very normal, I believe, for a, uh, new market to materialize. It requires quite a homogeneous set of customer needs, it requires certain economic conditions. So these things just by nature will occur less. So we do see more opportunities coming from the traditional lines of business, IP, DNO, etc. But companies trying to use data and analytics in a smart way to do better pricing, dynamic underwriting to adjust policies in the middle of the annual cycle or just by delivering better turnaround and having an improved customer experience. So we are definitely going to see quite a lot of growth from there. And we as, ah, Chaucer, we do define it as innovation. We think that industry has quite a lot of catching up to do. Yeah, that's something that we're definitely spending a lot of time doing, Tom, in

Speaker A: a world where you're doing existing products but a fundamentally different way, presumably there's now a generation of tech, particularly AI enabled tech, which is enabling you to look at some of those things differently and persuading yourselves that what this MGA has to offer is basically a better way of underwriting and a better way of servicing the client than they had before. Is that how it works?

Speaker C: We don't just do MGA's within the business that we're looking at, but if we look at that, there's a fundamental underlying supply demand cycle within insurance. Right. And this wouldn't be the first time. Those of us with a few gray hairs have seen expansions of fee earning underwriting businesses and then contractions of that. Right. So that is part of the cycle that happens from time to time depending on your environmental and economic circumstances. But I think you're right to say that we're finding it much easier to communicate with each other as, uh, insurance businesses, especially as specialty insurance businesses. And therefore we are finding new ways that we can distribute and underwrite products through different underwriting platforms. The interesting thing about that obviously is you could go off in any different direction from the very biggest broker facility style models to smaller MGAs are able to scale or use their limited resources far more effectively than they would have done in the past. So it's a tricky question to give a generic answer to. But that's going to continue, right? I'd say we're at the first 10% of that journey.

Speaker A: One of the things I would associate with Chaucer is that you've long been associated with innovation. You've put innovation high on your list of things you want to be associated with and want to be known for. That's deliberate. What's the sort of motive for that and going beyond that. It's not about making money because we all know those who have been around the InsureTech space for 10 years, it's a long time before you make money. So tell us a little bit about the thinking that underpins all that.

Speaker C: So I think that's a fair point. Right? And that's one of the things that the more experienced innovation markets understand that can help their clients, investors and so forth with in terms of that pace of change and the product development piece within the innovation area. But to answer the main thrust of your question, there's two elements to that. A company that doesn't innovate, whatever sector you're in dies one way or another. And you can overuse the analogy, but the frog in the ever heating water doesn't know it's slowly getting cooked. But also, I think there's a really serious need for the insurance industry to service its customers better. So real people, real businesses. And if you don't have that innovation function developed within your business in lots of different models, there's different versions of innovation, whether it's embedded within underwriting teams or centralized function where it's over there, whether it's separated into a different balance sheet to do that. But if your company isn't focused on trying to look forward into the new problem areas, then you're not going to be doing your job as really what an insurer fundamentally does, which is shift unacceptable risk off one person or business's balance sheet or pin into the insurance market. Another overused analogy. But if there's no risk, there'd be no insurance. And as we understand stuff better the risks are becoming more complicated. Insurers are needing to respond to those better. So that innovation function has never been more important. What we think we've done quite well at Chaucer is integrate that, uh, across our business by embedding the innovation function within the underwriting community. Irina and Nasra, uh, sit as much with other underwriting teams as they do coming up with weird and wonderful crazy professor products. And that's worked really well for us at Chawser.

Speaker A: Yeah, we've all learned a lot in the early days of Chaucer. They were separate organizations and they gave birth to orphaned children that the underwriting community then refused to adopt and the whole thing died on the bind. You have to do them collaboratively with your underwriters if you want to make it broaden the acceptance and make it endemic within the business.

Speaker C: I think that's absolutely right. But I also think there is always a place for that moonshot stuff as well. Right.

Speaker A: Really? What do you look for in these things? As Tom said, some of these things come from mga, some of them don't. But there must be attributes that you look for in these propositions that, you know, align with your interests and make you think that the people bringing them to you might have something you want to align with.

Speaker B: Yeah. So perhaps paradoxically, just to start off, we don't think or don't see the technology as a enduring moat anymore. So we will look at it, but it's not a differentiating itself just because it became highly commoditized and just AI decreasing the cost of building software. So the things which we think bring durable differentiation is distribution, really trusted relationship with the customer, so access to IT and really understanding customer problems intimately. Having proprietary workflow still sometimes with a human in it and the sense of urgency really matters. We do like when the innovation partner is really passionate and driven by what they are trying to solve. And last but not least, the ability of the teams to listen and take the feedback on board. And we do appreciate it seeing in the teams that we choose to work with. Yeah, so very generic set, but still traditional elements of insurance business. Because we are in the industry of M. Insurance really matter more than just automation and tech.

Speaker A: This is a conversation that's coming up quite a lot actually because I live in an innovation echo chamber where we all persuade ourselves that the tech is doing absolutely marvelous things that all you carriers should be absolutely thrilled to see. Real time data sets and all kinds of other things. The truth is that the benefits of that don't really feed through to you. They certainly don't if the underwriting results aren't any good. So it's still back pretty basic criteria when you're making mortgage, but also back

Speaker B: to the fundamentals of a lean startup. You don't want a team that sits in the room of engineers and builds a perfect product without never talking to a customer. You want them to get out there and test immediately what they're trying to build. And I think teams do choose Chaucer as a partner because we have underwriters and we can guide them through what needs to be answered, sometimes to understand whether the product can have a chance of finding its product market fit.

Speaker A: Tom, before we get off innovation into some of the other market dynamics, I need to talk about the protection gap, because everybody doing innovation at some level has some sense which insurance has a responsibility to tackle some areas of the protection gap. To what extent is that an influence?

Speaker C: Yeah, absolutely. The first thing, going back to Rina's point, if the customer doesn't have a problem, your solution doesn't matter. And flippantly talking, no one wants to spend money on insurance if they don't have to. So you need to find those areas that make the biggest impact in the most economically sensible way. I've just come back from living in Singapore for the last 12 years, and after a while I refused to do podcasts and panel discussions that were talking about closing the protection gap within Asia because nobody wanted to pay for the premiums that the insurers wanted to charge them for the policies that they didn't want. So the protection gap is very real. It has been very real for a very long time. Some, in some economies and some societies, like I point out, the US and Australia in particular, they are very open to transferring risk onto insurance balance sheets. And other parts of the world, they're not. In some product lines, we find that very easy to do, say property, for example. In other product lines, like ip, for example, we find it very difficult to. What the innovation communities tends to think about is that new emerging risks, whether that's an AI risk or climate risk, et cetera, et cetera. But as any good crisis manager underwriter would tell you, the biggest risk that most companies have on their balance sheet is their intangibles, not their tangibles. And we've been very bad as an industry at really getting ahead around on how to protect that. So, yeah, I learned a hell of a lot in living in Asia when we were trying to work with governments, with NGOs, with private organizations to try and close the Most basic protection gaps within societies where you would see a equivalent CAT loss in Australia be 60, 70, 80% protected by the insurance balance sheet to seeing that same loss happen in India or the Philippines, it could be 2% protected. So forget about your IP needs, your most basic motor or property is not covered. So it's what we're there to do as an insurance community. But it is not easy to do that, especially when people want to spend money on different things.

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Speaker A: Let's just park innovation and look at some of the other trends that are informing your workload. You must have to respond to the sort of market dynamics of the moment. I got a list of these things, but let's start with the whole portfolio. Underwriting trackers that must have come in presumably to your desk. What's the thinking on that stuff?

Speaker C: The first thing is to note that all of those facilities trackers, the new forms of smart follow are all slightly different. So we talk generically, but if we want to talk about specific areas, just please just ask. I think the general trend is obviously that there is a commoditization of follow capacity happening within the market. I think we should never forget that we need a leader, we need a competitive pricing environment and we need someone to service claims. And that unlike the motor market, say, which is highly commoditized and automated, we're not talking about automatic quote binding these kind of things. We're talking about automatically follow of someone else doing that regulated insurance duty. I think that is a massively powerful force within the specialty insurance market at the moment. I think we're just at the tip of moving away from the blind or dumb follow into the smarter versions of this, where more sophisticated fund managers will be able to tailor the rules around which they want to follow the insurance risk that is entering into the market. I think there's a very philosophical thinking about how that actually manifests itself the different stakeholders, especially the brokers within that chain. But ultimately, how are we getting a very good product at um, the best price to our customers? The most quickly, I think is at the heart of all of those questions is really interesting. And what it looks like today is not what it will look like in a couple of years time. But I am convinced that that much more of the entire global specialty insurance market will become commoditized. It's interesting, right, because London has been a great place to do this because it's a central clearinghouse, ironically, despite the problems that people have had with Blueprint 2 and things like that is actually a really good place to start because it's much harder to do in more fragmented marketplaces. But yeah, it's definitely going to be a trend now.

Speaker A: I'm intrigued to understand a bit what influences you. If I'm being cynical. I say to some extent you have the ability to determine your own strategy on this stuff, but to some extent you're very dependent on brokers who are bringing you things and brokers who are increasingly saying this is the way we'd like to do this stuff. You feel a need to respond and align your, I don't know, appetite matching capabilities accordingly.

Speaker C: Firstly, you'd make a great underwriter because a good underwriter should have a healthy dose of cynicism and skepticism about them. But yeah, you may have a theoretical position that you think a market should take towards these kind of solutions, some people completely reject them. That's not a wrong position to take. But to your point around, to what extent that's shaped by the brokers, et cetera, et cetera, it's a threat to the brokers as well. It's a threat to the way the retail to wholesale to London wholesale models work. And if we were being completely honest, if a huge tech giant with a trillion dollars in their bank account wanted to try and disrupt that market and felt that it was worth doing it, and they have tried, right? A few of them, I won't name the names, have tried to do that, then they could wipe out entire parts of that industry. So it is up to us to respond to those initiatives as they emerge. And that's largely tech driven, but quite culturally driven as well. If you'd gone to an underwriter in the 2000s and said to them, even though some of them were doing that, I follow Joe blogs at the box because I know he's a solid underwriter and a great guy and I'm going to put my line down after him. Now we're really industrializing that process and people are nervous around that. They're nervous around that for control issues, they're nervous around that for cultural issues. But I think that response within the market community is the right response. And I don't think it's us versus them with the brokers by the way. I think it's absolutely companies like ourselves working in conjunction with the brokers to work out how to best make this stuff work for the market and for the customers that were involved in it.

Speaker A: When we have startups on we always let them pitch. And I don't normally do this with carris, but you're not the only one doing innovation underwriting. There's quite a few people around. If somebody with a smart new product idea wants to work out where to take it, why would they bring it to Chaucer?

Speaker B: Thank you for the opportunity to pitch. I think you can think of Chaucer as a really strategic partner. First of all, we've done it for a while and we've done it for a while quite successfully. So we really understand businesses well, can see the inflection points. We can advise when to pivot and we can advise them how to build in which direction the product should develop and how to structure the proposition with credible underwriting without expense of a customer experience. Secondly, probably the biggest benefit is that we do have a dedicated team and senior leadership buy in so we don't have to explain why we exist, why we do what we do. And this immensely helps with the access to different capabilities and resources across the business. So we have an established innovation process and when we review and when we co develop the products with our partners we involve people from across wardings, actuarial exposure, management claims just to co participate in this process. So startups omg's M can think of it as their own insurance outsourced capabilities that they can't afford to hire yet or they just don't think about it just to yet. And I don't think many carriers have an offer this on the market so in practice they have very hands on experience for free and um, access to an incredible underwriting expertise. Really Tom, am I missing something?

Speaker C: Nothing's for free. I love a bit of insuretech swag, a nice hoodie or a good yeti mug somewhere.

Speaker A: Tom, would you like a pitch? Should I give you the chance to have a pitch? I'll set you up for a pitch if you like.

Speaker C: Up to you though, although I'm not going to share my picture with everyone because the partnership side of the business, as opposed to the innovation, is a bit below the line. A little bit. Go back a couple of years when we first started the partnership team up. I actually wasn't a massive fan of name partnerships. I didn't think it was catchy enough or insurancey enough, but now I realize that it was actually the right name. Our job is to make our carrier partners, our, uh, underwriting partners, our broking partners, bigger and better at what they do. Our job isn't to be the people out there throwing around marketing material and selling products on the partnership side. So we're quiet about the way we go and do that. We want people to understand that if they come to us and they have the right intentions and the right alignment with what our business very linked to what Irina was just saying about long term partnerships, long term stable relationships with people, that we'll be there to ride through that cycle, ride through the difficult parts of their business and hopefully give them the tools in the form of capacity and intellectual challenge and, um, debate with them to allow them to really go and focus on what we want them to do, which is to shift more insurance products.

Speaker A: You didn't want a pitch, but then you gave me a pitch anyway.

Speaker C: You won't find that on the Internet, though.

Speaker A: No, you're quite right. Let me ask you another question, because it greatly intrigues me. You're a quality pro. You've been around a long time, but you've been, whatever it is, 18 years at Chaucer. That is a long time to be at one organization. And I'm sure that people came calling from time to time. What is it about Chaucer that makes you want to have, uh, the most important years of your career? There's.

Speaker C: I only work at companies beginning with C. Robin Catlin and then Chaucer. That's my rule. I don't know why. No, I've been very lucky at Chaucer. I've been very lucky in my career, and I suspect a lot of similar people in my position say the same thing. I've had great bosses, I've had people that I really want to work for that challenge me intellectually. I'm a very curious person. So they push me and they've been very apolitical in the way that they've dealt with me. And that's always been the sort of biggest superpower that I've ever been given with strong leadership. But specifically for me, I've had three careers at Chaucer, so it's almost like three different jobs. I was at London Market Casualty Treaty underwriter for five years when we set up the book here. I then moved to Asia and ran our Singaporean and Middle Eastern treaty portfolios out from there, which is incredibly exciting. Moving from dealing with London Market brokers to going to place business in the Chinese market was endlessly fascinating and difficult and challenging. And I made a lot of mistakes and learned a lot there. And then the last three or four years, I've had this great opportunity to bring all of that, uh, experience together from different lines of business and different geographies that work on this innovation and partnership stuff. So. Been really lucky. Chaucer's changed a lot as a company as well. We've been through three different ownerships. We've been a public company, a private company. We really believe this at Jausa. It's like the people that we work around with in Chaucer, uh, it's a very culturally strong company in terms of the way that people work with each other. We've literally had people join us purely because of our reputation as a good place to work. Not a nice place to work in terms of, like, it's all easy and all the rest of it, but a good place. Challenging career, awards, no politics, etc, etc, so fantastic. Difficult to leave once you're there.

Speaker A: Irene, have you had a career with good bosses?

Speaker B: I'm in the middle of it right now.

Speaker C: What do you want her to say there? Not yet, but when she sees it, she'll tell you.

Speaker A: I was her boss once, so, yeah, I realized that.

Speaker C: I did not know that.

Speaker B: That's true.

Speaker A: So we go, look, we're at the end. We could do a lot more of this. We're running out of time. For those who don't know, we've had to race this recording forward because Irina, uh, is, what, 10 days away from maternity leave, doing a little startup of your own?

Speaker B: Almost, yeah. Two and a half weeks.

Speaker A: We'll see whether we can't edit this up and get it published before you disappear for a while. Very best of luck with all of that. Thank you very much for joining and being such good fun to chat with.

Speaker B: Thank you, Robin, for having us.

Speaker C: Robin, it's always a pleasure talking to you. I really enjoy our chats. Thank you for having us on.

Speaker D: Well, if you've made it this far, then I'm pretty sure you found that as interesting as I did. The Instec podcast comes out every Sunday morning where we spotlight the latest news, leading voices and freshest updates across insurance that you need to know about. If you would like to take part in these conversations. Head to www.instec.co to find out how you can join our network and be a part of the insurance Intelligence for the curious.

Speaker A: Sa.