Now retired, Greg McCutcheon, an industry veteran, gave an in-depth interview to the Insurance Portal where he took a critical look at the industry to address its weaknesses and build on its strengths.
Late last month McCutcheon announced his retirement as president of Verisk Canada, effective May 1.
The former executive and now consultant is currently on a speaking circuit to wrap up his prior commitments. With the Insurance Portal, McCutcheon discussed the industry’s collective challenges including the insurance to value challenge he says the industry is closer to solving than ever before.
In a look back at his career spanning 30 years in automation and process improvementwhere the technology has evolved dramatically from the use of MS DOS to generative and agentic artificial intelligence (AI), McCutcheon also discusses the industry’s use of these technologies, the rise and use of actuarial science in virtually all aspects of insurance today and the notable challenge that climate change presents for the industry.
Insurance to value (ITV)
In 2010 and 2011, one collective industry challenge under scrutiny was the problem of underinsurance. A challenge that McCutcheon says has been on his desk for 30 years, it initially led to the creation of the iClarify solution, a white-labelled product now appearing within broker management solutions and others.
iClarify was initially developed by McCutcheon and a team of data scientists working with two databases: One from SCM Insurance Services, Canada’s largest independent claims company at the time (now part of UK-based Davies), and RMS (Risk Management Services, at the time a division of CGI), Canada’s largest inspection company. (RMS was acquired by SCM in 2008.)
McCutcheon says the companies realized early on that the amalgamation of both created the largest pre loss and post loss database using Canada’s largest property inspections database along with the largest repository of total loss claims data that the two companies possessed. This was the foundation of iClarify.
“The insurance to value challenge that came out in 2011, where the industry came to the conclusion that they were undervalued by $11-billion, that lead to a lot of collaboration with industry stakeholders and the creation of the iClarify solution,” he says.
Today, for example, it’s estimated that 70 per cent of commercial buildings are underinsured, on average, by at least 30 per cent, if not more. McCutcheon says Verisk Canada has the ability to run complete insurance portfolios, however many policies there may be, and compare those addresses on file with up-to-date data on current values. “When we do that analysis, we continue to see homes that are dramatically underinsured,” he says.
Inflationary guard practice
New business policies are being underwritten more carefully than ever, in large part because COVID’s inflationary impact on most building materials has in recent years inspired companies to take a careful look at replacement costs. On the renewal side, he says the industry continues to use an inflationary guard practice of applying a 4.5 per cent increase across the board, instead of evaluating properties on an individual basis. Rather than taking this aggregate view, McCutcheon advocates for those conducting this business to make use of the available resources to take a closer look at each property individually.
“(Companies) should be doing an up-to-date cost guide on a more regular basis,” he says. “Cost guide is a new calculation, making sure that you have the data on the location and the changes that have occurred to it.”
He adds: “When we have the technology to look at that on an individual-by-individual basis, looking at this on an aggregate basis is the wrong process.”
In one example, he points out that a company which has retained a home policy for eight years likely won’t have up-to-date information on that property. During COVID, he says 50 per cent more permits were taken out. “People made a lot of modifications to their homes. Those aren’t necessarily picked up in the original data that was submitted by the customer when the home was first written.”
The solution is not as onerous as it once was, either. “Verisk Canada drives the majority of that work in the industry right now. It’s much more effective and easier to do in an automated format than ever,” he says.
“The old process was a 30-minute conversation asking the customer all kinds of details about their house that they truly didn’t know the answers to. It was labourious and the data that was collected, because the insured didn’t really know the answers to all 20 or 30 questions that he had to answer, the data was wrong. The evaluation was therefore calculated wrong, and it stayed wrong. It was a half-hour process that was terrible.” Conversely, today he says those working on insuring clients simply input the property address, validate datapoints with the customer and quickly move forward. “That’s a huge difference.” He adds that today 98 per cent of all new business quotes are completed using the iClarify solution.
Be prepared to pivot
This was not always the case. When iClarify was first created, McCutcheon spent close to two years on the road trying to convince the industry to move away from its existing processes and make very significant changes. The industry’s eventual acceptance, he says was a relief. His advice to startup businesses and others today: Be prepared to pivot.
“What I thought my customer needed and what they came back and told me they wanted weren’t necessarily aligned. If we hadn’t been able to quickly listen and respond, we would’ve gotten nowhere,” he says. “The customer is the customer is the customer. If you want to have a market, you’d better listen to their feedback.”
He says today inflation has cooled but remains large enough in client’s minds that conversations about replacement costs can be easier and need to occur if the industry is interested in managing the ITV problem.
“There’s a great opportunity. Commercial pricing has decreased and softened dramatically in the last six months.” He adds that premiums have come down as much as 40 per cent in some cases. “It’s a great time for brokers and managing general agencies (MGAs) and the industry in general to reach out to building owners and discuss hyperinflation. There’s a very good chance that your buildings are not insured to value,” he says. “It’s one of those things that can kind of slip through the cracks during the renewal process.”
He adds that it is a conversation that people are willing to have today. “Insurance to value has been on my desk for 30 years,” he says. “It’s time to file that file. We’re getting very close. We have the technology. We have the ability, through automation of underwriting processes and the property intelligence – aerial imagery, satellite imagery and all of this wonderful technology, we have an ability to put the file to bed, once and for all.”
Technology’s advance
No question, AI is the latest technological evolution the industry is working with. It’s not new (iClarify was created using machine learning) but the approaches to AI development and deployment vary from company to company. “There’s a lot of thoughtfulness about how we deploy these solutions,” he says. “I think that there’s all kinds of experimentation going on with AI, but we’re ahead of the legislation that is bound to come. It’s a matter of time.”
Regulation is a challenge in a country which has difficulty simply moving claims adjusters from one province to another during a catastrophe due to provincial legislative differences. This challenge is summed up in a question McCutcheon poses when he asks, “how are we going to regulate the use of AI in the insurance process itself?”
He says much, if not all of the industry’s work in this area, including the management of model inputs, data variables and predictive analytics has been done ethically, with that future governance in mind.
Over the years, what has also changed is the industry’s use of actuarial science. At the start of his career when underwriting was a manual process, actuaries were small in number and generally part of teams. Flashing forward to today, actuaries occupy many C-suite positions, they run pricing teams and drive most decisions about risk segmentation and pricing across the country.
“The other change was the rise of the data scientists,” he says. “Many actuaries have transitioned themselves into data scientists. That’s another evolution that’s at the forefront right now.”
Climate change, catastrophes and location intelligence
Long a well-known industry collaborator, McCutcheon’s recent invitations have also included those to the industry’s discussions about climate change.
The long-awaited federal insurance backstop for homes located in flood zones is one development he says is not moving quickly enough. “I don't believe that anybody should be kicking this can down the road, any further,” he says.
Legislation barriers preventing the deployment of personnel across provincial borders is another element he says should be removed altogether. Municipalities granting permits to unwitting homeowners who are not aware the properties they’re developing might be in prone areas, is another concern.
“It’s not just the insurance industry that needs to work together to solve this problem, it’s all levels of government. It’s the insurance industry. It’s banking and mortgaging,” he says.
“We don’t have municipalities understanding that they shouldn’t be giving building permits in areas that we know are prone to flood, for example,” he adds. “Let’s stop doing that.”
He says even with an insurance backstop, mortgage lenders should also not have an appetite for backing builds in areas known to be prone to catastrophic events. “We have more information on this now than ever,” he says, adding that it is necessary to help people build some location intelligence.
“The other thing I’m really excited to see and I’m hoping that we’ll see more of, is the concept of building back better,” he adds, noting the emerging trend in the industry to provide coverage that will allow damages to be rebuilt using upgraded materials, hail resistant shingles for example, instead of similar materials which likely will not sustain similar events in the future.
He is also encouraged by the fact that wildfire is being studied, researched and understood now to a greater degree. Perhaps the most notable lesson the industry has learned from catastrophic events too, may be how to mobilize.
“Every time these events do happen, our industry learns something from every one of them and takes steps to make sure we’re doing a better job next time,” he says.
