A recent “shift in the norm” means greater innovation in insurance products is now essential, a US insurance expert says.  

Property & Liability Resource Bureau CEO Bryan Falchuk is urging a “rethink and reset” of common insurance products that were largely developed in the 1950s.

He told more than 300 attendees at Insurtech Australia’s InsurtechLIVE event in Sydney last week the world is now “wildly different, but we’re still basically using the same policies from 75 years ago, just slightly iterated every year for regulatory changes and a bit of competition and price.

“Do you think cars are anything like they were back then? The materials houses are built with, the labour it takes to repair them? Maybe there are some other [insurance] solutions ... Be willing to stand against the hubris of ‘the way we’ve done it is always right, or comfortable’.

“Question if there isn’t a way to do it differently – think about changing. Are you willing to take a totally different approach to how you cover risks? It’s your chance to rewrite your own history instead of being overwritten by it.”  

The same cover does not work when the “exposures have really moved as much as they have”, he said. 

“There’s both a severity and a frequency elevation going on, a confluence really, and that’s what makes this moment different than the things we’ve faced in the past and the way we’ve faced them before.”

Mr Falchuk said the “traditional insurance cycle was years before, and now it’s single-digit months. So we just keep getting punched ... It’s why [we no longer] have some big years and then it gets quiet for a while and we remake the money the industry lost.

“We’re not getting that respite any more.” 

He said climate-related losses are increasing and the gap between them is shrinking. 

Supply chains are “very constrained and it costs us a lot” to replace cars or buy materials to rebuild. The go-to levers of raising rates, pulling out of unprofitable markets and cutting costs are “really not enough any more because the game has changed”. 

“It’s not expenses,” he said. “We keep focusing on that. That’s not where the real problem is. It’s in the core product and the profitability there. We can’t just raise rates. We can’t just pull out of markets ... We need to step back and recognise that the core product needs a rethink ... We need to reset.”  

Dynamic pricing that adjusts to changing risk and encourages mitigation is one solution, he said. “On the whole, we’re not predicting much and we’re certainly not preventing much. There’s a lot more we can do there on the pricing side.”

Mr Falchuk recommended using more data sources in real time to either have a more dynamically priced product – for example, usage-based insurance in some lines – or to identify signals “that we should step in and intervene”.  

“Should we reach out? Should we target them for these sensors that can help identify a pipe burst? There are things we can do to intervene along the way. Can we get signals back that inform our pricing?”

Mr Falchuk said parametric solutions can help where “losses are driving homeowners’ insurance rates through the roof to the point that people can't afford them and carriers can’t afford them either”. 

“What if you could carve out this dysfunctional part of the product that is no longer fit for purpose, where your only alternative is just sell a higher self-insured retention or deductible which leaves people uncovered?  

“That’s not a great solution – what if you carve it out and solve it with a product that has a totally different economic structure?

“It’s not free, but it should reduce their overall cost of coverage because the part that didn’t work as an indemnity cover might work better as parametric with different economics.

“I just want to have everyone in this industry thinking about, is this really the way it should be? Is there an opportunity for us to challenge things?”