4 Digital Transformation Trends Shaping Europe’s Insurance Renaissance
New business models and new technologies have unfolded a new era of change and disruption in the Insurance industry. Digital Transformation is on the strategic agenda of many progressive Large Commercial Insurance organizations in Europe. The use cases for Digital Transformation technologies such as IoT, Big Data and Machine Learning are as relevant to Large Commercial Insurance organizations as they are to Personal Lines, though many commentators argue that Personal Lines insurers have been somewhat ahead in their adoption of such technologies. Currently, we are engaging in many discussions and prototyping exercises to help shape the strategy of our Large Commercial customers in the UK and mainland Europe. Let’s look at four of the definitive trends that we see emerging today.
#1 Hyper-Personalization of Commercial Insurance Products is Here to Stay.
- The Internet of Things (IOT), along with Big Data processing are enablers here. A ship company, for example, may release tracking and maintenance data to their insurers in order to reduce their premium by providing evidence that their ships do not stray into high risk waters, and that the ships are well-maintained. IoT-enabled devices will propagate the data, Big Data technologies will process these large streams of data and make them accessible and understandable to insurers. The concept of hyper-personalization – which has been part of the world of personal insurance for a while, and which extends concepts such as telematics into the commercial insurance space – also has relevance to commercial insurance lines of business. For example, an organization that owns and maintains buildings may release maintenance information on those assets in the expectation that a data-rich definition of the risk will allow the insurer to tailor the level of cover more effectively and, ideally, reduce the premium. Those who do not expose this data may end up investing in blanket insurance products, and run the risk of being over- or under-insured in the event of a claim.
- Insurers are looking to differentiate their products by understanding risks better, and giving the insured an increasing sense of being “cared for” in a Digital age; a relationship based on trust. This can become harder to achieve when the relationship becomes more distant and impersonal through digital devices. Our Digital Emotionally Empathetic Experiences (Digital E3) concept, which puts the individual at the center of digital insurance experiences, reflects this insight, and we observe a trend to make it ever more straightforward, through technology, to release increasing amounts of data to insurers if they wish, and for insurers to provide, in return, an increasingly transparent and comprehensive service.
#2 Insurers are Embracing Proactive Risk Mitigation as a Core Service.
- One possible progression of the scenario in which insurers have the capability to review and assess risk based on IoT data, is that they also develop the capability to identify situations, which may cause damage to the insured’s assets, and work proactively with the insured to mitigate the risk. Machine Learning technologies will surface insights in Big Data sets that would remain hidden with older analysis techniques. For example, an insurer can work collaboratively with the insured in order access their building management systems to identify early warning signs of damage to an industrial building, which may cause a fire. The insurers risk engineers can then advise on the maintenance program, which is required to minimise the risk. We have seen examples of these kinds of proactive practices at play during our customer interactions, and think this is a trend that will continue and accelerate.
- This innovative shift changes the role of the insurer fundamentally—the insurer moves from being a reactive party consulted when things go wrong, to a proactive, real-time partner that helps the insured avoid claims. You shift from insurance to assurance. This, of course, means that insurers are likely to need additional, or different, organizational capabilities in the future. Yes, the industry is ripe for this kind of disruption.
#3 Cyber Risk will Continue to be an All-Important Topic.
There are many aspects to this developing subject area. For now, few anecdotes to indicate its potential to extend the insurance offerings:
- One of the insurers, we learnt, is using an organization to check on the dark Web if there is likelihood that the insured is likely to be the target of a hacking or other cyber-crime attempt in the short-term. The resulting “Cyber-score” is then used as an input into the underwriting decision.
- Another insurer told us that many organizations that have been victims of cyber-crime do not know how to deal with it, and which is why he was developing a service that can help such organizations manage the aftermath, including avoiding statements to the press or actions that compound any security deficiencies that may be picked up during subsequent investigations into the breach. In many cases, the insurer has access to a deeper set of knowledge and skills, and an insured can get access to this by working closely with their insurance providers.
#4 IoT Regulatory Environment is an Emergent Concern.
Insurers need to have the flexibility in their systems (i.e. organizational capability) to be able to react quickly and quite inexpensively as possible to changes in regulatory environments. IoT regulatory frameworks are still underdeveloped internationally, and questions such as ones listed below don’t have very many clear answers:
- Who owns the data yielded by IoT devices?
- How can that data be used?
- What does digital consent mean?
- What if certain aspects of your IoT and Big Data algorithms must be made public?
Insurers who are keen to enjoy early mover advantages with IoT-based value propositions must build in the flexibility to be able to adapt quickly as the regulatory environment changes.