AI and IoT in Commercial Insurance: An Interview with Sy FoguelOctober 27, 2019
By David Schapiro
Sy Foguel, CEO and President of Berkshire Hathaway GUARD Insurance Companies discusses AI and IoT in Commercial Insurance with David Schapiro, co-founder of Planck – a provider of AI based data analytics for commercial insurance.
Interviewer’s note: I have known Sy for many years, but this was the first time we exclusively discussed his thoughts on cutting edge technology relevant for the insurance industry. As usual the discussion was inspiring and his answers real and to the point.
David Schapiro (DS): Could you please tell us a little bit about Berkshire Hathaway GUARD and its core business?
Sy Foguel (SF): Berkshire Hathaway GUARD is a P&C insurance company focusing mostly on commercial lines.
GUARD currently writes about $2B of premiums nationwide. Our lines of business include: Businessowner’s, Commercial Package, Commercial Auto, Professional Liability, Workers’ Compensation, Umbrella and Homeowners.
GUARD’s average growth rate in the last 10 years was over 20% annually with an underwriting profitability level of around 10%-15% – well above industry averages.
DS: AI and IoT are two terms with quite broad definitions – could you please share with us how you define AI and IoT?
SF: Both terms are actually not new concepts:
AI is a concept that dates back to the 1950’s and work done primarily in the US military back then. What is new is some very impressive success in areas such as machine learning, natural language processing, the ability of programs to teach themselves to play games like Chess and Poker and more. Currently for the insurance industry, AI is proving to have value in analytics with applications for pricing and underwriting decisions, and software with the ability to leverage big data to make real-time decisions.
IoT is also not a new concept in insurance. We’ve had protective safeguards for a long time – central station fire alarms, burglar systems and more. What is new here is the cost. You can have many inexpensive gadgets to monitor things like heat, smoke, or humidity, and for auto insurance you can track things like vehicle speed and hard stops. These IoT devices can connect via Wi-Fi or cellular, adding the ability to send and receive data, receive alerts, and change settings remotely.
DS: At the conceptual level – how do you see AI and IoT potentially impacting the commercial insurance industry? In which areas do you see the primary business value? Will this be a one time or continuously improving impact?
SF: I think auto insurance – including commercial auto – is and will be one of the first lines impacted. Many personal cars already come with ADAS (Advanced Driver-Assistance Systems), but not trucks, so systems that do both telematics and assisted driving like lane departure warnings, can help not just better analyze risk, but also reduce accidents. We are delighted to offer our commercial auto customers increased value with access to ADAS and Fleet Management Systems (FMS) that can help avoid costly claims.
Modern AI and IoT are still in their early stages and this is certainly a long-haul project that will not end as long as technology advances.
DS: Do you see the combination of AI and IoT as providing together increasing or even non-linear/exponential returns in commercial insurance or “just” two important technologies that work well together?
SF: I think one should be careful of the hype. These tools can be significant, but they are just two of many tools.
There are things in insurance that cannot easily be replaced. With all due respect to deep learning, the law of large numbers is still a mathematical certainty. You need a database of information and the limits of statistical credibility is as relevant to AI as it is to classical statistical methods such as GLM (Generalized Linear Model).
It is important to use good tools and gather all the data available to make informed business decisions. The industry is just beginning to utilize AI and IoT with traditional business models and how best to blend old and new practices is still an ongoing process.
DS: In which areas would you see the largest potential impact of AI and IoT in commercial insurance?
SF: Systems that not only monitor activity, but also can help avoid claims such as automatic water leak prevention and shut-off valves, automatic fire prevention systems, ADAS and collision avoidance. These types of items will help to improve the industry and – more importantly – help to provide insureds with peace of mind through avoidance of costly claims repairs and an added level of safety for them and their property.
These products will create efficiencies in the industry such as increasing the percent of risks that can be found online without need for a human review, answering call center questions and more.
DS: Could you please provide an overview of how you would see some of these areas developing over the next 2-5 years with extensive use of AI and IoT?
SF: I can’t give a specific timeline. Insurance is highly regulated and it is very hard to invent good things in insurance (you can invent things, but many times they won’t work or actually won’t be an improvement). There is a reason why there are very few travel agents’ offices, but there are still many insurance agents. I believe things will develop but not overnight.
DS: And in 5-15 years?
SF: If I knew to forecast things 5-15 years in the future, I wouldn’t be working for a living.
However, touching on my earlier answer regarding the need for a large database of information, the more these products are used in the marketplace, the more information we will have on what works, what doesn’t, and where our attention should be focused.
DS: How do you see the advantages and disadvantages of newcomers (new Insurtech carriers) in harnessing the potential of IoT and AI vs. the incumbents?
SF: I am not sure they have much of an advantage. Large, sophisticated companies can invest a lot in technology in a way that won’t be efficient for a newcomer. Progressive and GEICO can invest a billion dollars in a technology that will reduce their loss ratios by 2.5%, small companies/startups will have a hard time to compete with this. Down the line, these newcomers may benefit from advancements in technology brought about by the larger companies, but they will always be playing catch-up.
DS: If you were to give advice in this subject to a fellow CEO of one of the commercial carriers, what would it be?
SF: Don’t fall asleep, but beware of the hype!
DS: If you were to give advice on this subject to an Insurtech company, what would it be?
SF: There is a reason why so many insurance companies are struggling with legacy systems and it is not because the insurance people are stupid. It is the complexity of the product. There are many dimensions in an insurance product: the product, the coverages, the insured risks, the location, the insured’s characteristics, and more. Therefore, it is important that early on you add an insurance expert to your team.
Sy Foguel, CEO and President of Berkshire Hathaway GUARD Insurance Companies
As Chief Executive Officer and President, Sy Foguel leads the strategic planning and positioning of the organization, helping to promote initiatives that make realization of both short- and long-term goals possible. His involvement with the company has been marked by numerous accomplishments. Under his leadership, since 2007, the company’s annual premiums have grown by a factor of ten, while maintaining a combined ratio well below industry peers and diversifying into new lines of property and casualty coverage. In 2012, he then helped orchestrate the profitable sale of GUARD to Berkshire Hathaway Inc. (specifically National Indemnity Company) and has continued in his role as CEO/President – rebranding the group as Berkshire Hathaway GUARD Insurance Companies and becoming a nationwide carrier.
Prior to his current tenure, Sy had accumulated diverse international, executive-level insurance industry experience, including roles as CEO of IDI Bituch Yashir of Israel, Executive Vice President of Clal Insurance of Israel, and Senior Vice President of Arch Insurance in the United States as well as being in charge of other international insurance ventures such as a Lloyd’s Syndicate and insurance companies in eastern Europe.
Sy is an honors graduate of the Computer Engineering and Mathematics Faculties at the Hebrew University in Jerusalem, is a certified actuary in both the U.S. and Israel, and is a member of several actuarial societies in both countries (ACAS, FILAA).