Travelers’ Schnitzer: Scale will increasingly matter in insurance in next five years

By Michael Loney

June 4 - (The Insurer) - Travelers chairman and CEO Alan Schnitzer has predicted that scale will be increasingly important in the insurance industry amid a greater need to develop technology.

Speaking at S&P Global Ratings’ 41st Annual Insurance Conference in New York on Wednesday, Schnitzer outlined three challenges for the P&C market: the regulatory environment, tort environment and overall level of uncertainty in the world.

Schnitzer described the regulatory environment as “an assault on risk based pricing.”

“We need states and we need regulators to support risk based pricing,” he said, suggesting that artificial barriers to this undermine the insurance business model.

However, he said despite these “clouds on the horizon” the economy is in good shape and the insurance market on the whole is displaying rational behavior.

Schnitzer said the biggest tailwind for the industry is technological innovation.

“When you can spend a billion and a half dollars a year on technology, which we are, and we have the data that we have, it’s a really exciting time to be in insurance,” he said.

The executive also predicted that in the next three to five years that scale will increasingly matter in the insurance industry.

“I think for a variety of reasons going back decades you could be small and niche and be successful. I think that's going to be harder and harder,” he said.

“I don't think Travelers is uniquely positioned, but I don't think there are that many companies that are spending large sums of money in very effective ways and developing technology that's going to be consequential in the way we run this business.”

Schnitzer suggested his company has the data to fuel technology and AI, and has the balance sheet to deal with the uncertainty and weather volatility.

“So I think it's going to be harder and harder to not be at scale and not be able to do those things. I think over time that results in just a consolidation of premium from the companies that aren't of scale to the ones that are two things: one, of scale, and, two, leveraging that scale effectively, which I think is easier said than done,” he said.

Schnitzer said AI “is going to be profound for the insurance industry.” He said it is still in the early stages but there are some very exciting developments.

He gave an example of Travelers’ claim organization having an AI-assisted first notice of loss and digital experience. About 50% of its claims now are either handled with straight through processing without human touch or have some component of advanced digital technology assisting it.

Schnitzer also said that AI has helped to improve the process of taking in information from submissions from two hours to two minutes.

“That is a huge time saving, and our agent/broker partners tell us that in a high percentage of cases often the first quote gets the business, and so that puts us in a position to operate more effectively and to win more often,” he said.

Schnitzer pointed to the California wildfires as another example. Travelers used aerial imagery and AI to assess total losses and was able to pay them nearly 60% faster than in 2017 and 2018.

EVIDENCE-BASED CATASTROPHE SOLUTIONS NEEDED

The executive was also asked about the catastrophe environment .

“It's very important, and it's very emotional and it's very politicized, and I think that's really unfortunate,” he said. “I'm a climate change believer… But when we look at our data, climate change is actually a relatively small contributor to the increase in catastrophic losses.

“The real drivers of loss activity come from population growth, population moving into harm's way, and economic inflation. So more stuff at higher values in harm's way,” he said.

Schnitzer said an evidence-based approach to the problem is needed when committing capital to it.

“The reason I'm so outspoken about this isn’t because I'm trying to help our competitors think about how they're going to do it, but I think it's important from a public policy perspective.

“When our public policy makers are thinking about what are the solutions to climate change, whether that's movement to greener sources of fuel or whether it's resilience, we really need to be evidence based about the problems and about the solutions,” he said.