Balance sheet risk, subrogation, crypto currencies & wine; the Partners' chat

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A short episode for you this time as Matthew and Robin talk about what they have been up to in recent weeks, the latest trends catching their eye and what the autumn has in store for InsTech London and our community of 4,000 people, supported by 80 corporate members.

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Listen here to podcast 46. It is also available on iTunes, Spotify and Podbean.


Transcript for this podcast

00:00 Matthew: I've got today's word of the month for you, which is "subrogation". You're a lawyer. Can you explain what subrogation is?

00:06 Robin: Absolutely no idea.


00:07 Matthew: Hello. Matthew Grant here, partner at InsTech London, and welcome to this week's podcast. This one's a short one. Robin and I are getting together again for one of our partners chats, catching up on some of the themes and things we've been seeing as we've been talking to people in this last month. In this podcast, I find out what Robin knows about subrogation, talking about some of the events coming up, and yes, wine does make its way into the discussion once again. And we've got a pipeline of excellent guests lined up for this Autumn, some have already been recorded and will be coming out shortly. This includes well-known figures from insurance companies, MGAs and brokers, some of the CEOs of early stage companies from around the world, you may know, and some you may not. We're also returning with our live recordings. We've got our reverse pitch at The Steel Yard next week, and we're bringing you the highlights from that in our future podcasts.

01:15 Matthew: Robin, I see you're staring in the most recent issue of InsureTech Magazine, and have been named, I'm not quite sure what category they put you in, but is it bon vivant of insurance in London?

01:26 Robin: Yes, I was termed as a community builder, and bon vivant, which frankly, I'm rather proud of. Expensively acquired moniker, that.

01:35 Matthew: Well, when you haven't been out there bon vivant-ing, what else have you been up to the last couple of weeks?

01:40 Robin: We've started to see more and more concrete examples of how the nature of risk and the nature of loss is changing, and that, how insurance companies, and particularly Insure Techs, are having to evolve to reflect that. For the first time ever, I've got a crypto asset insurance request in, quite a serious one from a crypto portfolio management fund who want to be able to provide insurance to their members. And it was nice to see. That's gone from concept to genuine requirement in a very short period of time.

02:16 Matthew: Yeah, and I saw Forbes had an article saying they reckoned it was $300 billion of crypto risk out there, of which only about a billion dollars is covered. So it's certainly a big opportunity for, I guess, both people doing analytics around this and anybody looking to place a risk.

02:32 Matthew: Talking about this whole concept of rethinking or expanding the area of risk, I came across an article in Insurance Insider, it's a quick call out to them as one of our sponsors. But talking about cover, and this is a cover spelt C-O-V-E-R, not to be confused with the various other covers out there. But they're offering balance sheet protection. They've just raised $27 million, and they're another company that's coming out full stack, so it looks like, yeah, people are starting to realize that insurance is not just about covering the immediate physical or liability loss, but there's a lot more losses that can actually come, even if they're secondary or tertiary effects from a loss that can make the way into the balance sheet but aren't always recognized.

03:18 Matthew: And actually, I was just talking to the head of innovation at Allianz Global Corporate Specialty yesterday, and she was saying that their customers are also saying to them, certainly at the CFO level, that they're looking particularly for areas that can help them on this balance sheet risk, it's moved on just from single asset protection.

03:36 Robin: I've been working incredibly hard these last 18 months on high net worth IoT, where the customer wants it and the insurance industry is unable to provide it. I'll tell quickly the story but, there's a property manager who manages some of the most expensive domestic real estate in London, so these houses are worth tens, perhaps hundreds of millions. They're owned often by foreigners as investments. They're therefore empty for much of the year. They therefore represent a pretty unsavory property risk and are priced accordingly. He wants to tackle the problem by putting sensors throughout the buildings. He wants, therefore, to be able to show how well he monitors and manages these and as a result get a reduction in premium. He can't find anyone to play with him.

04:30 Robin: The insurance industry's reaction is two things: "We don't understand the dataset. It's a new dataset to us. We don't know how to... The value of monitoring." And secondly, "We've now dealt with our problem, which is we've put the excess point so high, that actually smaller losses, often at hundreds of thousands of pounds, smaller losses aren't our problem anymore. And if it's not our problem anymore, it's not something we're prepared to tackle." And I just think that's a dangerous place to go. That's not listening to the customer, and it's putting your own interests ahead of the customer, and that's one area I still think we are well short of what we could be.

05:10 Matthew: And I suppose it's what Munich Re Digital Partners is looking to do with a number of the MGAs they've supported, where, Andy Rear was on stage yesterday at the Plug and Play presentation, joking, but with a serious intent that he hadn't actually yet made any money from Munich Re, but that's partly intentional, because they're exploring these MGAs to see where there are new areas of risk, and some are niche, some could be quite big. And the point is not to be able to make money. Certainly Munich Re's got a balance sheet where they can absorb losses they hadn't expected 'cause they're-starting off quite small, but I think what he was saying is that from an insurance point of view, you have to be out there and experience the risk. The look of the losses shouldn't be challenging your entire balance sheet, but that's really the only way to get into this in the early stages, and that's actually often where opportunities are is to do it, be there, be the first mover and learn and then grow.

06:01 Robin: One of the insurers that I spoke to put it this way, "Thank you for the opportunity, Robin. We recognize it's the future, but we'd rather not try and tackle it now." In a similar vein, talking about how the nature of risk is changing, I've heard for the first time the expression, "guarantee of service", which I quite like. I'll give you an example. The big platform providers of travel. So you go onto a platform, Expedia, whatever, and you look for your flights. They're actually looking to completely bake in flight cancellation and use technology to solve that problem.

06:41 Robin: So what they want to do is, say, guarantee that if your flight is cancelled, they will put you on the next flight. And the insurance they want is to cover the gap between the cost of putting you on the next flight. The actual customer doesn't even know they've got insurance. The customer is just getting a guarantee that they'll be on the next available flight. The insurer's role in that has changed quite a lot, from, "I will provide insurance at a price," to simply being... Riding on the back of the platform provider to provide a guarantee of service.

07:19 Matthew: So I have our word of the week for you, Robin, or word of the month, "subrogation". You're a lawyer. What does that mean?

07:24 Robin: Oh no, that's too... Look, I've passed all my law exams, so I've already proved that I know what subrogation is, he says candidly. No, what is subrogation?

07:33 Matthew: Well, subrogation seems to have been turning up a lot recently, but the most recent bit is with the news that Pacific Gas and Electric, which is the utility that's being blamed for starting the wildfires in California in 2017 and 2018, or at least some of them. And what's happened is that they have now agreed that they are going to, basically, pay for $11 billion of the claims. And the point about subrogation is the insurance companies have already paid most of the claimants who've had their properties burnt down, but they can now pass that cost back onto PG&E.

08:09 Matthew: So that's what a subrogation is, when you pass your claims onto somebody else. What's interesting is an impact from that, it's a bit like what we're talking about on this balance sheet cost is that now turns up as a liability cost, if indeed PG&E can get insurance for it. So you're seeing this escalation of the costs. Now, talking about balance sheet risk, PG&E is going through the ultimate balance sheet risk, which is actually they're now in the stages of declaring bankruptcy because of their total cost for this.

08:35 Matthew: So and interesting, both in terms of like the issue of balance sheet risk, but also if you actually look at wildfire, and it's an area where 10 years ago people weren't really thinking about wildfire at all when they're modeling loss. And of course, now it's become very much top of mind. PG&E, one of the reasons they're struggling is they went back to the markets and they were offered 40% rate online for wildfire. Now, it's partly because people understand the risk but can't model it accurately and so they're charging very high rates. And so, PG&E can't survive without the insurance cover.

09:06 Matthew: And in fact, it's not just the insurance cover, the loss, the size is so big they've actually now even had to take it into the reinsurance market to try and see if they can get cover there. So again, back in this theme of looking for opportunities, and an example of where the market is still struggling to be able to provide cover immediately after a loss, where you get a combination of not understanding the basic risk and maybe overreacting to a loss.

09:30 Robin: If you were to name the two biggest macro issues that give opportunity for insurance then climate change must be one of them, and the changing nature of loss which comes as a result of all that. Now, I'm off to Japan for a couple of weeks leaving you to organize our next event. What have you got in mind?

09:46 Matthew: We've got our platforms event on the 22nd of October, and platforms, one of these tricky ones at one level, because everybody these days, in addition to having AI, is calling themselves a platform. But actually, we're really pleased we've got Neverdare again sponsoring this. We're bringing together SalesForce. We've also got Guidewire on stage. We've had a lot of comments about Guidewire when we've been talking to people, so it'll be really good to get them talking about what they're up to. We've got a few surprises in store in terms of some early stage companies, but already, that then is selling out. So if you're listening to this, and you're in London and you haven't already registered, then we recommend you do so. And talking about events, Robin, can we talk about your wine tasting event or is that just for your close friends only?

10:32 Robin: I've got a very busy November. I've got the life and health show-and-tell on the 11th of November, kindly sponsored by RGAX. There are a few slots for presenters on that still. So there's 20 show-and-tell presenters, we need. We've probably got the majority of those, but if you've got something that you think would wow the insurance and reinsurance industry in the life and health sector, let me know. And straight hot from that, for members only, we've been able to organise a brilliant event, which we're going to learn from those disrupting in the wine industry, and extrapolate out of that what the insurance industry could learn from wine innovation. That was the best way I could find to get it sponsored. I was just genius.

11:19 Matthew: And what's the balance between the wine and what insurance industry can learn?

11:25 Robin: I haven't been to the event yet, but I promise you this, that we will podcast something around what the wine industry can teach us.

11:32 Matthew: Good, well, as we know our last member's event was the summer party. Which, actually, we enjoyed and other people seemed to enjoy it. So I think another great event. Anybody listening that's not yet a member and wants to sign up, then you can find the details on the website. I think we'll bring it to a close there, but Robin, enjoy Japan. We will get a Japanese special when you come back, I guess, part rugby, and maybe some InsureTech in there as well.

11:56 Robin: Thank you, look forward to it, bye.


12:04 Matthew: If you'd like to find out more about what we're doing at InsTech London, you can get details of many of our past events, our future events, also find out who our AT corporate members are, and details of what else we've been up to. If you're not already signed up to our newsletter, you may also find that useful if you wanna find out what we've been learning in the week, and what events we've got coming up, it's on the yellow bar on the right hand side of the website, at

12:33 Matthew: As Robin mentioned, we're still open for a few presenters for our life and health event on the 11th of November. So drop us an email at hello@InsTech London if you think that you've got what it takes to be part of that. It's gonna be a show-and-tell event. And finally, as I mentioned, we are great fans of Insurance Insider, and we're very grateful to them as one of the partners for the podcast. If you'd like to get a free copy of their insights and breaking news, the details will be in the episode notes.



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