Navigating Technological Shifts in the Insurance Landscape with John Butler

John Butler is currently the head of the US insurance investment division at Cohen & Company, LLC a New York-based financial services business. With over 27 years of experience in the insurance industry, he brings a wealth of knowledge from his background as a traditional insurance underwriter and later as a manager investing capital into insurance.

John, having been in the insurance industry for nearly three decades, how have you seen the sector evolve, particularly in terms of technology adoption?

John: The insurance sector has been traditionally slow to adopt new technologies, especially compared to other financial markets. This is partly due to the unique and bespoke nature of insurance policies, which makes standardization difficult. Over the last ten years, there's been a significant push to modernize, driven by the need to better handle and process large volumes of data. This technological evolution was necessary, albeit delayed, as insurance companies struggled to keep up with advancements that other financial sectors were already implementing.

Can you elaborate on the challenges faced by insurance companies due to legacy systems?

John: Absolutely. Many insurance companies operate on outdated legacy systems that hinder their ability to efficiently process data. As these companies grew—both organically and through mergers and acquisitions—they inherited a patchwork of systems that often don't communicate well with one another. This situation creates significant challenges, as there is a constant need to update and reconcile these systems to improve data flow and decision-making processes.

How do regulatory and technological differences impact the insurance markets in the US compared to Europe?

John: While the fundamental challenges are similar across both regions, there are nuanced differences, particularly in data handling due to regulations like GDPR in Europe. In the US, the rise of managing general agents (MGAs) and their integration with capital markets and reinsurance providers is driving a demand for clearer and higher-quality data. This demand is shaping system improvements and influencing the faster adoption of technologies in certain segments of the market.

With the vast amount of data available now, what do you see as the primary challenges for the insurance sector today?

John: The main challenge lies in harnessing and effectively utilizing the burgeoning volumes of data. For instance, property insurers now have access to detailed satellite imagery, and auto insurers can gather extensive data from telematics. While these advancements offer the potential to drastically improve underwriting and claims processes, the real hurdle is having robust systems capable of integrating and analyzing this data to enhance decision-making and maintain a competitive edge.

Looking at customer experience, how has technology impacted this aspect of the insurance industry?

John: Technology, especially AI and machine learning, has significantly transformed customer experience by enabling more personalized and efficient services. Today, insurance companies can deploy AI-driven products quickly and with relatively little infrastructure overhaul. This shift not only reduces the time and cost associated with new technology implementations but also allows insurers to offer more tailored and responsive services to their clients.

As AI and data analytics continue to evolve, how should insurance companies approach regulation and innovation?

John: Insurance companies need to strike a balance between leveraging detailed data for better underwriting and claims handling while ensuring they do not exclude potential customers unfairly. Regulations will likely become more stringent as AI becomes more pervasive in decision-making processes. It's crucial for insurers to engage with regulators actively and ensure that their use of AI and data analytics aligns with evolving legal standards while still serving the best interests of their customers.

Finally, what do you believe the future holds for the insurance industry over the next decade?

John: The industry must embrace technological advancements aggressively to stay competitive. Insurers that hesitate to adopt new technologies will likely fall behind as the sector continues to evolve. The key will be in integrating innovative data analysis techniques and AI to improve efficiencies and customer service without losing sight of the personal touch that is crucial in insurance.

This Q&A is not intended to, and does not relate specifically to any investment strategy or product that Cohen offers.  The views and opinions expressed herein are those of John Butler and do not necessarily reflect the views of Cohen & Company, LLC, its affiliates or its employees.