How insurers decide which innovations succeed

Robin Merttens, InsTech: [00:00:00] Welcome to this week’s InsTech podcast. This week, I’m pleased to say we’re joined by team from Chaucer. We don’t have enough insurers on our podcast. I’ve got Tom Graham and Iryna Chekanava from Chaucer. Welcome both.  

Iryna Chekanava, Chaucer: Thank you.  

Tom Graham, Chaucer: Thank you very much. Good to be here.  

Robin Merttens, InsTech: Tom, you’re the Head of Partnerships and Innovation at Chaucer. Tell us what that job involves.  

Tom Graham, Chaucer: 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 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 [00:01:00] 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 with specialty insurers like Chaucer active in. 

And the innovation team is better represented by Iryna, 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.  

Robin Merttens, InsTech: Iryna, have you ever been called a ‘crazy professor’ before?  

Iryna Chekanava, Chaucer: No, first time. Mad scientist. 

Robin Merttens, InsTech: So your job title is Senior Innovation Underwriter at Chaucer, 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 sort of class underwriters?  

Iryna Chekanava, Chaucer: Yeah. So I’ll start probably quite generically. At Chaucer, innovation is all about new insurance products and underwriting innovation and also cultivating the environment in the business that makes it possible. 

In its purest form, it’s about testing and introducing new products into the business. [00:02:00] In terms of the appetite, we will look at anything that sits outside of everyone’s underwriting remit but still within Chaucer’s strategy. Oftentimes we will still work with a lot of underwriters because of our new insurance products that’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. It’s quite a broad remit, but in terms of the 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 old ones done differently.  

Robin Merttens, InsTech: 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, insuring IVF [00:03:00] 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 that you’re innovating around. 

Iryna Chekanava, Chaucer: Yeah, so we do put both of those in our remit. I have to agree, 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 new market to materialise, it requires quite a homogeneous set of customer needs. It requires certain economic conditions. 

So these things just by nature will occur less. We do see more opportunities coming from the traditional lines of business: IP, D&O, et cetera. But companies trying to use data analytics in a smart way to do better pricing, dynamic underwriting to adjust policies in the middle of the annual cycle, or [00:04:00] 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 Chaucer, we do define it as innovation, and 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.  

Robin Merttens, InsTech: Tom, in 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 their client than they had before. 

Is that how it works?  

Tom Graham, Chaucer: We don’t just do MGAs 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 grey hairs have seen expansions of fee earning underwriting businesses, and then contractions of that, right? 

So that is part of the cycle that [00:05:00] 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 insurance businesses, and 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’ve 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.  

Robin Merttens, InsTech: 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? 

[00:06:00] And going beyond that, it’s not about making money, because we all know those that have been around the insurtech 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.  

Tom Graham, Chaucer: So I think that’s a fair point, right? And that’s one of the things that the more experienced innovation markets understand and 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 2 elements to that: 

1. 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 overheating water doesn’t know it’s slowly getting cooked. 
2. 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 with an underwriting team, so it’s a centralised function, whether it’s over there, whether it’s separated into a different balance [00:07:00] 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 be doing your job as really what an insurer fundamentally does, right? Which is shift unacceptable risk off one person or business’ balance sheet or P&L 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 across our business by embedding the innovation function within the underwriting community. 

Iryna and Nasra (Nasra Ahmed, Senior Innovation Manager) sit as much with other underwriting teams as they do, what, coming up with weird and wonderful ‘crazy professor’ products. And that’s worked really well for us at Chaucer.  

Robin Merttens, InsTech: Yeah, we’ve all learned a lot. In the early days of insurtech, they were separate organisations, and they gave birth to orphan children that the underwriting community then refused to adopt, and the whole [00:08:00] thing died on the vine. 

You have to do them collaboratively with your underwriters if you want to broaden the acceptance and make it endemic within the business.  

Tom Graham, Chaucer: I think that’s absolutely right, but I also think there is always a place for that moonshot stuff as well, right?  

Robin Merttens, InsTech: Iryna, what do you look for in these things? 

As Tom said, some of these things come from MGAs, some of them, 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.  

Iryna Chekanava, Chaucer: Yeah. So perhaps paradoxically, just to start off, we don’t think or don’t see the technology as an enduring mode anymore. 

So we will look at it, but it’s not a differentiator in itself, just because it became highly commoditised and just AI decreasing the cost of building software. The things which we think bring durable differentiation is distribution, really trusted relationship with the customer, so access to it and really understanding customer [00:09:00] 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 they’re a generic set, but still traditional elements of insurance business, because we’re in the industry of insurance, really matter more than just automation and tech.  

Robin Merttens, InsTech: 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 marvellous things and 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 about pretty basic criteria when you’re making a judgement.  

Iryna Chekanava, Chaucer: But [00:10:00] also like back to the fundamentals of a lean startup, right? 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 like 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.

Robin Merttens, InsTech: Tom, before we get off innovation into some of the other m- 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?  

Tom Graham, Chaucer: Yeah, absolutely. 

The first thing, going back to Iryna’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 [00:11:00] 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. In some economies and some societies, like I would point out the US and Australia in particular, they are very open to transferring risk onto insurance balance sheets. In 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 or whether that’s an AI risk or climate risk, et cetera, et cetera. But as any good crisis management underwriter would tell you, the biggest risk that most b- companies have on their balance sheet is their intangibles, not their tangibles. 

And we’ve been very bad as an industry at really getting our [00:12:00] head around on how to protect that. So yeah, I learned a hell of a lot living in Asia when we were trying to work with governments, with NGOs, with private organisations to try and close the most basic protection gaps within societies where you would see an 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.

Robin Merttens, InsTech: Let’s just park innovation and look at some of the other trends that are informing your workload. 

You know, you must have to respond to the sort of market dynamics of the moment. I got a list of these things, but, but let’s start with that whole portfolio underwriting trackers. That must have come in presumably to your desk. What’s the thinking on that stuff?  

Tom Graham, Chaucer: The first thing is to note that all of those facilities, trackers, the new forms of smart follow are all slightly different. 

So we’ll 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 commoditisation of follow capacity happening within the [00:14:00] 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 commoditised 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 the best price to our customers the most quickly, I think is at the heart of all of those questions. It’s really interesting, and [00:15:00] what it looks like today is not what it will look like in a couple of years’ time. But I am convinced that much more of the entire global specialty insurance market will become commoditised. 

It’s interesting, right? Because London has been a great place to do this because it’s a central clearing house. 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.  

Robin Merttens, InsTech: Now, 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?  

Tom Graham, Chaucer: Firstly, you’d make a great underwriter because a good underwriter should have a healthy dose of cynicism and [00:16:00] 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 put my line down after him. 

Now we’re really industrialising that [00:17:00] 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 are involved in it.

Robin Merttens, InsTech: I mean, when we have startups on, we always let them pitch, and I don’t normally do this with carriers, 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?  

Iryna Chekanava, Chaucer: 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. We can see the inflection points. We can advise when to pivot, and we can advise them how to build and which direction the product should develop [00:18:00] and how to structure the proposition with credible underwriting without expense of a customer experience. Secondly, probably the biggest actual 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 wordings, actuarial, exposure management, claims, just to co-participate in this process. 

So startups or MGAs can think of it as their own insurance outsource capabilities that they can’t afford to hire yet, or they just don’t think about it just yet. And I don’t think many carriers have and offer this on the market. So in practice, they have very hands-on experience for free and access to an incredible underwriting expertise really. 

Tom, [00:19:00] am I missing something?  

Tom Graham, Chaucer: No, nothing’s for free. I love a bit of insurtech swag, a nice hoodie or a good Yeti mug somewhere.  

Robin Merttens, InsTech: Tom, would you like a pitch? Shall I give you the chance to have a pitch? I’ll set you up for a pitch if you like.  

Tom Graham, Chaucer: Up to you, though. Although, I’m not going share my pitch 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 the name ‘Partnerships’. I didn’t think it was catchy enough or insurance-y enough, but now I realise that it was actually the right name. 

Our job is to make our carrier partners, our 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 quite quiet about the way we go and do that. 

So 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, [00:20:00] very linked to what Iryna 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 debate with them to allow them to really go and focus on what we want them to do, which is to shift more insurance product. 

Robin Merttens, InsTech: You didn’t want to pitch, but then you gave me a pitch anyway.  

Tom Graham, Chaucer: You won’t find that on the internet though.  

Robin Merttens, InsTech: 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 organisation, and I’m sure that people came calling from time to time. 

What is it about Chaucer that makes you want to have a, the most important years of your career there?  

Tom Graham, Chaucer: 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 [00:21:00] 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 by, 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, 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 experience together from different lines of business and different geographies to 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 Chaucer. It’s like the people that we work around with [00:22:00] in Chaucer, 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, et cetera, et cetera. So fantastic. Difficult to leave once you’re there. 

Robin Merttens, InsTech: Iryna, have you had a career with good bosses?  

Iryna Chekanava, Chaucer: I’m in the middle of it right now.  

Tom Graham, Chaucer: What do you want her to say there? Not yet, but when she sees it, she’ll tell you. 

Iryna Chekanava, Chaucer: Well…  

Robin Merttens, InsTech: I was her boss once, so…  

Iryna Chekanava, Chaucer: Yeah, I realise that. 

Tom Graham, Chaucer: I did not know that.  

Iryna Chekanava, Chaucer: That’s true.  

Robin Merttens, InsTech: 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 Iryna is, what? 10 days away from maternity leave, doing a little startup of your own. 

Iryna Chekanava, Chaucer: [00:23:00] Almost yeah. Two and a half weeks.  

Robin Merttens, InsTech: 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.  

Iryna Chekanava, Chaucer: Thank you, Robin, for having us.  

Tom Graham, Chaucer: Robin, it’s always a pleasure talking to you. I really enjoy our chats. Thank you for having us on.