Skyward CEO Robinson: Industry AI exposure has potential to be “D&O nightmare”

Skyward Specialty CEO Andrew Robinson has touted his firm’s use of AI at every level of the organisation, while also warning that AI exposures will touch multiple liability classes and, like promises made on climate change, could represent a “D&O nightmare”.

Speaking in a wide-ranging interview with The Insurer TV, the Skyward CEO also commented on current insurtech market conditions, the M&A landscape and growing concerns around casualty loss deterioration.

In the interview, Robinson called Skyward a “technology-focused organisation”, saying that it is “very, very focused” on tech adoption, which he said is in his “DNA”.

“We're rolling out our 2024 OKRs [objectives and key results] and our notion of becoming an AI-first organisation is pushed down to the individuals [at the company],” he explained.

“Every single person in our company has a personal OKR [where] they need to understand the technology, play with the technology, and introduce to our organisation a use case relative to the [role] they play about the way that we can use AI and generative AI in their roles,” he said.

To that end, he emphasised that frontline practitioners are expected to work with AI in their day-to-day routine.

“There aren’t probably too many companies that have that kind of OKR pushed down to the frontline workers and a requirement to build that DNA into the organisation,” he said.

Robinson said Skyward is “leaning hard” into incorporating large language models into its business, adding that like other technologies, “it’s probably overhyped in the near term, and underappreciated in terms of the medium to long term”.

Discussing the possible industry exposures to AI, Robinson described it as a potential “D&O nightmare”, along the lines of the growing trend among firms to make bold promises on how they plan to handle the climate transition.

“I think that AI brings an entirely different level of risk. [It] isn't just in management liability – it’s professional liability, media liability – and it'll appear in general liability,” he said.

Robinson also said that he doesn’t think the industry’s exposure to AI is “fully understood, because it is evolving so quickly”, but that work is underway to understand how it might appear in coverage being provided.

“But most certainly it's going to be a topic to watch as we roll into ’24 and beyond,” he said.

Skyward has “strongest balance” during Robinson’s tenure

In addition to AI, another major topic generating increased attention is casualty loss development trends, and Robinson was asked how confident he is in his firm’s reserving position and the loss portfolio transfer deal Skyward has in place with R&Q.

He was also asked, given growing concerns over a number of accident years, whether he thinks there will be a rush among firms to get legacy deals done, and if there might be an influx of capital into that market.

“I definitely think capital is out there because the yield environment is so attractive that that is a very logical place to gather assets,” he explained, “if you can understand the implicit tail risk”.

Skyward’s deal with R&Q protects the firm against liabilities from the 2017 policy year and prior.

“We feel like we have certainly the strongest balance sheet that we have had since I joined the organisation, and I feel great about our reserve position, and it's been a really important focus for us,” he explained.

“I think it is fair to say that people are recognising that tail, and particularly some of the social inflationary characteristics of the tail, are both concerning in terms of the back book, but also what it means for the business going forward,” he said, adding “and we’re no exception”.

To that end, Robinson highlighted the rising concern over swiftly increasing bodily injury claims severity.

“Unlike the med mal crisis around 2000, where states almost in unison made corrections and [enacted] tort reform, we don't see that happening,” he explained.

“Litigation financing and the plaintiff bar have tremendous power – they're well organised, and I don't think this is an easily addressable issue going forward,” he commented.

He said that, like a similar phenomenon playing out in cat-exposed personal lines and in commercial auto, soaring premiums are likely needed to bring attention to the need for regulatory reform.

“If it doesn't ultimately get corrected, then insurance becomes unaffordable,” he said.

“We're not talking about the appropriateness of damages. It's spun out of control, to the point that at some point insurance will become unaffordable in certain categories,” he said.

Better insurtechs attracting funding at corrected valuations

Robinson also touched on the state of the insurtech landscape, a part of the market where the CEO has significant experience, and where he said valuations had previously reached levels that “might not have been responsible”.

“[Last year] scared a lot of people – including investors challenging their portfolio companies to reduce the cash flow [burn and] and extend out the horizon,” he commented.

Robinson added that the insurtech world has “quickly” found out that good businesses have still been able to attract capital, but at “different valuations” than achieved in 2021.

He also said that he thinks the insurtech market is “still in that resetting process”.

“But the practical reality is many of these businesses burn cash, they're going to require capital to keep going, and so you're ultimately going to get to this reconciliation” of choosing to either raise money at a flat or down round, or instead opting for an outright sale.

Robinson said it is a “low probability” Skyward could be an acquirer in the ongoing insurtech shakeout, but he wouldn’t rule it out completely.

The Skyward CEO concluded his comments by discussing the cyber segment, calling the business line “a very interesting area for us” and saying that the company is being “thoughtful” in how it approaches the market.