Soft markets, hard questions: AI, risk & the future of professional insurance

Hello and welcome to Insurance Business TV where we're going to take a look at the professional risks insurance market in New Zealand. We have Nina Croft, Northern Manager of Financial, Executive and Professional Risks for WTW to talk to about that. She's in Auckland. Welcome back, Nina. Good to have you back on the show. Thank you, Danny. It's good to be back. Yeah, nice to have you. From your perspective, there's a lot of talk about how soft the market is at the moment. I mean, how soft is the professional risks insurance market in New Zealand right now from where you're sitting? We are still very much in a soft market since we last spoke, Danny. There's still plenty of capacity. There have been new entrants into the market. The insurers are applying rate reductions. I mean, we're not just seeing this in the New Zealand market as such, but across Australia and our London markets as well, which we deal with quite a lot. Insurers generally are not just adhering to their technical rating anymore in a bit to sort of hold on to clients. I guess the soft market generally is being driven by insurers with quite stiff budgets to meet, wanting to retain clients. Clients are trying to decrease expenditure. Obviously, with the economic climate the way that it is, brokers are being structured to remarket risks. So that is really sort of adding to the downward pressure on the rates. However, I guess for professions such as professional service fairs, particularly lawyers, sort of engineers, we're starting to see for those professions where it was particularly hard to obtain insurances. In some instances where they were doing a lot of conveyancing, if they were a lawyer or in a more risky sort of area with engineering, it was a lot harder to have options in the past. But now insurers are sort of open to looking at those a little bit more closely, particularly with these very well-managed risks with no claims attached to them. We are also seeing some gains in that area. In areas such as, I guess, real estate and construction, particularly, we're not seeing the same effect. But again, where there are very well-managed risks with very good claims histories, those are being written on their own merits. So I think, yeah. Now, last time we spoke, you mentioned technology risks, including artificial intelligence as one of the challenging areas in your insurance line. I mean, can you just discuss a little bit what other sort of AI risks your clients are facing? I mean, as we spoke about last time, it's a fairly new and emerging risk. It kind of burst onto the scene in about 2023. So we're still in the very early stages with regard to that. So it's still very much an evolving and growing area for everybody, clients, insurers, brokers, businesses alike. In terms of sort of some concerns or issues, you know, when we're looking at professional service firms using AI, whilst there's fantastic efficiency gains from a administrative perspective or, you know, helping with research and that sort of things, professional service firms particularly need to be very cautious of how it is used and to what end, because they are in the business of giving advice and we cannot, you know, they need to be cautious to ensure that AI isn't going to be replacing that very critical component of their businesses. Also, I guess where companies are using proprietary data to train AI algorithms without proper controls or governance, you know, those algorithms can potentially see corporate data such as, you know, what the company strategy is, customer information, IP, trade secrets, et cetera. So, you know, this can lead to things like privacy breaches. So they need to be very cautious with how it is deployed. It can also be quite dangerous where you have an actor who can potentially gain access and continually prompts the AI algorithm with leading questions until it unwittingly reveals IP. And on the flip side, you can have an actor who feeds in erroneous or incomplete information so that it then offers wrong or biased or inaccurate advice. So, yeah, there's still a lot to sort of be learned and gained, but yeah, there are certainly concerns. Yeah, there's a lot going on there. I mean, it's difficult for your clients. I imagine it's difficult for you as a broker too, to just keep your head up to speed and keep up to date with all this tech AI stuff. I mean, how do you do that? Are you in training all the time? Or what would you recommend to a broker who's struggling to keep up to speed with all this AI stuff? I guess every single organisation, whether you're a broker or an insurer, is obligated to try and stay ahead of the curve and navigate what's going on. So, reading, learning, being in training, doing whatever you can to stay ahead of the curve, it is such a fast paced and evolving area of risk. For larger, I guess, broken corporations, we have a lot more tools and a lot more ability to sort of filter that down and make information available. And we have teams who work on that. So, from that perspective, we are quite fortunate to be able to have information at our fingertips, but I guess where you're not so fortunate or don't have that much, it's, I guess, just reading, educating yourself, going to any training sessions that are offered, etc. As we talk right now, it's heading towards June 30, and it's a very, very busy time for you and brokers and everyone in the industry. I mean, what's on your mind right now? Is there a particular insurance challenge that's on your mind right now, or are you just pushing through the work? I mean, what's front and centre for you at the moment? I mean, we always need to push through the work, but we also do need to sort of stay ahead of the curve and be aware of what's going on. Again, just coming back to that AI piece. And, you know, there's a lot of other sort of challenges in the market at the moment. Things like natural disaster and climate risk is very big. Whilst natural disasters doesn't appear to directly affect professional risks, ultimately, the reinsurers who sit behind the insurers are affected. So, it does have an impact in the liability space. Also, obviously, inflation, economic pressures at the moment, you know, costs of claims and legal fees, if you look at it from an insurer perspective, which, you know, drives up, you know, the cost of insurance, we'll start to see that impact. At some point, again, reinsurance capacity constraints at the moment, everything is great. And we've got, as I said, we're in a soft market, plenty of capacity. But again, you know, a lot of these other things, when they do start impacting, will have an impact. Cyber risk, AI is always continually at the forefront of what we're thinking. It's evolving, it's changing, it's growing. So, we need to keep ahead of the curve there. And, you know, obviously, regulator and compliance pressures are always at the forefront, and we need to keep ahead of those. I mean, one of the big things as well is, you know, the whole concept of, you know, people risk and the psychosocial risks, that's really sort of front of mind as well. Dosa, that's getting in the professional risks area, it's now wellbeing, mental health, that's a discussion topic. Absolutely, absolutely. And yeah, definitely going into the boardroom, you know, directors are, you know, responsible for the health and safety of their employees. And it's not just the physical health and safety, but it now psychosocial risks as well. Oh, well, Nina, look, we'll leave it there. Thanks very much for your time. Thank you so much, Danny, it was lovely to see you. And you too. And Nina Croft is Northern Manager of Financial, Executive and Professional Risks for WTW. Thanks for watching Insurance Business TV. Bye for now.