Insurance is sometimes seen as a bit slow to catch up with technology, but this situation could be about to change.
Whether an insurer can takes advantage of these changes, which could affect the industry on a number of levels, essentially depends on if they can completely reinvent themselves or not.
For instance, let's look at blockchain technology, which created a new form of a public ledger for crypto-currency transactions. It's only recently that insurers have begun to assess how they could use the technology for themselves to create contract options, improve cybersecurity, cut down on fraud, and reduce costs. At the same time this platform could be used to allow startups to develop faster and reduce risks because it gives them a ready-made reliable infrastructure that they could leverage including peer-to-peer insurance groups.
People and their devices are also more connected than ever and this is going to have an effect on their exposure to insurers and the costs and premiums of those insurers. The most recent of these developments that changed the industry was the introduction of usage-based auto insurance (UBI).
This is insurance where the performance of a driver is monitored through a device installed in the car or an app installed on their phone. This UBI technology can change how customers interact with insurers by giving them a constant and more interactive relationship over the current system where they only really interact during a sale, claim or renewal.
Insurers can make the most out of these trends by offering clients a little more than just coverage prices based on their driving metrics, such as their speed and ability to brake and turn. They could also get some additional value out of real time connection to GPS tracking by offering things such as safety and maintenance warning and geo-fencing for elderly and teenage drivers to keep track of where they are. They can also offer discounts on products and services offered by outside partners.
Along with all these things, there are also some new sensing technologies finding their way into cars. This includes software designed to prevent speeding, drifting out of lane, and collisions. These technologies could have a dramatic effect on loss frequency and drive down the cost of auto insurance premiums.
Instead of becoming displaced by these developments it's important for an insurer to be more proactive about them.
Of course in the long term the biggest disruptor to connectivity is the "driverless" car, which will be the ultimate achievement in sensing technology. It could actually lead to a substantially reduced demand for personal auto insurance while also creating a higher demand for product liability insurance. This is because the fault for accidents involving these driverless cars will shift to the manufacturer of the vehicle or the creator of the safety software rather than the owner.
The opportunities, as well as the threats, of these connectivity-related disruptions go beyond just auto risks. The "Internet of Things" (IoT) movement is gaining steam and it will lead to the creation of "smart" homes and businesses. These will provide owners and third parties, such as insurers, with the ability to remotely watch and direct elements of insured property.
It won't be too long before the IoT enables insurers to become the ensurers as well as insurers. Carriers will be there to ensure that property is used safely and productively rather than just stepping in if damages and losses occur. There's a whole new chain of value created when a device connected to the IoT detects that a small part of a large piece of equipment in an even larger company is about to break down. If carriers don't act they could find that tech firms are the ones who launch IoT platforms that already come with this risk-transfer, effectively cheating insurers out of the chance to be insurers.
Even life insurance providers are not immune to the interference of connectivity. Life insurers will also need to begin assessing telematics, such as providing clients with fitness-monitoring devices and rewarding them when they lead a healthy lifestyle. This gives clients the chance to earn reduced premiums and other rewards while also fostering a healthier and more natural relationship with the insurer.
There's also likely going to be more robo-advisers present in the industry. These will be modelled after the automatic investment managers that are becoming more prevalent in the retirement-planning industry. Both personal and business insurers could improve their robo-adviser abilities by investing in cognitive technologies such as tools to interface between humans and computers including gestural computing (algorithms that allow a computer to interpret human gestures), affective computing (when computers recognise and even simulate human emotions) and augmented reality programs (when a real-world environment is recreated in a computer program).
The last thing worth mentioning is the rapid proliferation of fintech solutions. These are beginning to create an air of "if you can't beat them, buy them" in the insurance industry. The insurance industry isn't known for being one of innovation, and so insurers are already strategically investing in fintech to get their hands on cutting-edge tech.
Technological disruption is likely to present an ongoing challenge to insurers rather than being one singular event they need to move past. That's why insurers should make efforts to mitigate any potential damage by disruptive trends and also work on capitalising on the opportunities these trends presents. These efforts should be continuous rather than being some one-way journey.
Insurance carriers should constantly adjust and experiment to adapt to the ever-evolving technology industry and the expectations of their consumers. They need to be constantly reinventing their products, systems, and even entire business models. Instead of finding themselves displaced by these disruptive developments an insurer should find ways to turn these disruptions to their advantage. This could involve working with a complementary provider outside of the insurance industry for the betterment of both providers.