A new report published jointly by the International Underwriting Association (IUA) and Airmic is pushing the insurance market toward outcome-based policy structures in an effort to close widening protection gaps.
The report was produced as the result of a series of roundtables held with Airmic and IUA members, with KPMG as a thought leadership partner.
It argues that traditional product-line underwriting is increasingly misaligned with the way large organisations actually experience risk, particularly in areas such as data centre failure and supply chain disruption, where multiple exposures converge.
The report sets out recommendations aimed at closing protection gaps through structural changes to how risk is assessed, priced and transferred, including piloting insurance structures built around defined “outcomes” rather than individual perils, alongside reforms to exclusion design and stress testing of wordings against loss scenarios.
“The most consistent issue raised by large buyers is that insurance is structured around product lines rather than around the outcomes they need,” the joint report explained.
The joint report aims to address these challenges with recommendations to lessen, and potentially close, insurance protection gaps, including reviewing how policy exclusions are finalised for major classes of business and developing new approaches to testing wordings against loss scenarios.
Tom Hughes, Director of Underwriting at the IUA, commented, “There is consensus among underwriters and insurance buyers, particularly large organisations, that the protection gap is real, structural, and growing.
“Both parties want a different conversation and getting that conversation right is the key to ensuring the long-term value of the insurance industry.
“The IUA and Airmic will be working together to promote a new approach with greater communication and sharing of knowledge.
“A better understanding of clients and risk profiles is in the interests of all and will result in better pricing, fewer disputes, and longer-term relationships.”
Diane Maxwell, CEO of Airmic, said, “The insurance industry is confronting a widening protection gap, as organisations face an unprecedented convergence of emerging risks.
“They are creating exposures which existing products, distribution channels, and capital structures do not fully address. Better understanding of the client risk profile is in the commercial interest of the market, producing better pricing, and better relationships.”
