Anticipating the ‘next big thing’ key to long-term success: CNA Canada

Embracing transformational change in the commercial insurance industry is crucial to carriers’ long-term success, John Hennessy, president and chief operating officer of CNA Canada, suggested last week during a presentation at the Insurance Institute of Ontario’s “At the Forefront” event in Toronto.

“We definitely are at a point in time where we have to understand that transformational change is on our horizon,” Hennessy told the audience during his presentation, entitled Lessons from the paper route: preparing for transformational change in commercial insurance. “Business is changing and transforming all around us and it’s really important for us to be mindful of those changes, not only for our company, but for ourselves and people that count on us. We should all have our eyes on this horizon much more effectively than we do.”

Generally speaking, the commercial insurance industry has done a poor job of predicting the “next big thing,” Hennessy (pictured below) argued, whether that has been terrorism threats or, most recently, cyber risk. “We’re still delivering that same process, the same products, the same delivery mechanisms. We’re focused too much on keeping this process together without enough foresight on where this is going to head in 10 years’ time, what it is going to look like in 10 years’ time.”

One of the major transformational ideas to emerge recently is predictive modelling and analytics, which Hennessy said has already transformed personal and small commercial lines. Although predictive modelling does have its pitfalls – the need for reliable data (which can be a challenge for most organizations), “IT availability that matches up with the actuarial firepower” and the underwriting capability to guide the modelling – Hennessy predicted that it would become a fabric of the underwriter’s daily process.

“I’m not suggesting for a minute that underwriting goes away,” Hennessey stressed. “It’s coming and over the next five to 10 years, it’s my bet that’ll become a much more vibrant component of the underwriting process. Underwriters, as a matter of fact, will have more time to be dealing with true risk decisions as opposed to being administratively burdened. So predictive modelling can unleash the power of our underwriters.”

Hennessy added that predictive modelling has generally been embraced by the industry, but “some people have been brought into it kicking and screaming and some still deny it’s going to take its rightful place as a key component or fundamental element in the commercial market space.”

Industry specialization is also important, Hennessy said, noting that it is no longer good enough to be a generalist in the insurance industry. And carrier consolidation is “starting to heat up,” he added, due to third-party capital entering the reinsurance mechanism. “Make no mistake – these are fundamental, transformational issues that are occurring in the marketplace right now,” he emphasized.

However, despite these changes, Hennessy said sometimes the insurance industry reminds him of his old paper route as a youth. “We’re still working on a process that is 50, 60, 75 years old, depending on how long you want to measure it,” he said. Although new methodologies are being adopted and the process is being updated, “in large measure in the commercial space, we’re still just taking this old process forward. It’s still pretty much the same process that went on 50 years ago. At the fundamental level, there has not been a transformational change yet in the commercial line space.”