How UK Insurance is Coping with Winds of Digital Change?
It’s easy to get excited about digital technology and the innovation it can bring, especially in the insurance industry where the implications are boundless. At a time when the wider financial markets are embracing technology to boost sales and drive profits, the insurance market has often been accused of lagging behind with digital adoption – particularly in the commercial P&C and Specialty market.
The truth is that the insurance industry has already shown great initiative and made some significant advances albeit at a slower pace than other industries. It’s always interesting to hear from technology experts within the sector around what they think the next innovative initiatives will be and how they will impact the marketplace.
This week sees the best and brightest in insurance technology gather for the annual TINtech conference in London to discuss the latest advances in technology and how to leverage them to enable effective business processes, deliver operational efficiencies and drive customer-focussed innovation across insurance organisations.
The latest report from TINtech organisers, ‘The Insurance Network’, investigates the emerging technologies behind the next insurtech revolution, but also suggests that insurance still needs to up its game.
The survey found that 85% of respondents expect advanced analytics to significantly impact their business and 80% stated that Artificial Intelligence (AI) and machine learning will fundamentally affect the way they do business.
The frequently discussed threat to traditional underwriting posed by ever intelligent robots and AI needs to be viewed in context; we should be looking at these technology advances as an opportunity to remove the more straightforward underwriting elements and augment the more complex decision making processes presented by complex commercial risks. AI will supplement the underwriting decision-making process by providing relevant contextual, risk and customer focussed content…at least for the time being!
The survey then points to the Internet of Things (IoT) and the proliferation of connected devices as potential disruptors with nearly 40% recognising that this will have a significant impact of their business.
Business usage of IoT/connected devices has been more evident in personal lines space and there are plenty of examples to show how the digital ecosystem lends itself to this market including the multitude of connected health apps and wearable devices monitoring your daily activity and lifestyle, the telematics in your car and connected sensors in your home. Unsurprisingly, personal lines remains the dominant force for InsurTech with new technology being a major factor in 78% of deals in 2016 increasing from 73% in 2015 and 60% in 2014.
This supports the view that the nature of insurance is changing as we see the traditional models giving way to a more digitally focussed approach – encouraged, of course by customer demand. In fact 40% of respondents highlighted the customers experience as their number one driver for digital transformation. This trend will inevitably increase in commercial insurance as carriers innovate products to utilise the wealth of sensors and connected device opportunities. There are some good examples already including Hartford Steam Boiler who offer a sensor enabled property product mitigating flood damage from burst frozen pipes using temperature sensors in their insured properties.
This type of disruption will inexorably move into the commercial sector as new entrants unencumbered by the traditional model and traditional technology capitalise on their agility to respond to opportunities with innovative technology-enabled products.
However, that looks like a journey not all have embarked on with only 51% having started down the path of transforming their digital operations, according to the TINtech survey. Carriers are perhaps guilty of being reactive rather than proactive, and often the market cannot keep up with the pace of change offered by the latest technology. The sector needs to proactively address digital weakness or risk losing relevance with their customer base – and this will require a strategic rethinking of the traditional business model.
One way to begin this rethink is to establish IT departments and software vendors as partners and business enablers, not simply view them as an expensive cost centre that needs to be managed down. Most respondents in the survey agree with 86% believing it is mind-set that is holding back digital transformation in the UK insurance sector. That culture can change but it’s incumbent upon technologists and technology vendors to evidence the business benefits and validate the return on investment.
New technology will undoubtedly continue to impact our industry and the time is fast approaching when a lack of funds as identified by 44% of respondents as a reason for holding back on digital transformation will be an unacceptable excuse for inactivity.
At a time when the wider financial markets are embracing technology to capitalise on the opportunities and retain relevance within their customer base the insurance industry needs to adapt its mind-set and fully embrace the potential presented not only by the latest innovative technology but also by the IT teams and vendor partners who can deliver on that potential with them.