The Two Key Drivers for Insurance Technology for the Coming Years
Insurers may have been a little late getting on board with the opportunities offered by new technologies but there’s a sense of optimism in the air now. The standard drivers for technology adoption haven’t changed very much over the years:
- Reducing Risk – The more data you have, the more accurately you can assess risk and then address that risk. It’s not just about accurately assessing premiums either there’s a substantial reduction in fraud possible with better data.
- Growth – Data also drives growth. You can highlight market segments with the highest level of opportunity and gauge the potential for innovative products.
- Service Delivery – Reducing costs and improving the overall customer experience is essential to any retention strategy. Insurance brokers are going to be putting a lot of effort into ensuring that their choice of insurance software comes with a genuine return on investment in this area.
However there are two drivers that haven’t been recognized fully (until fairly recently) within the insurance sector.
- Competitive Technology Challenges – Brokers and insurers are slowly coming to the realization that technology can be a complete game changer. The way that some insurers approach risk could be dramatically transformed with better data – this might leave competitors out in the cold where they are unable to provide equal value. For example; we’ve looked at telematics before on this blog but insurers in the automotive field who aren’t introducing this technology are genuinely putting their business model at risk; particularly when you take into account the second new driver.
- Regulatory Challenges – It’s not that long ago that insurance premiums for car owners took into account the gender of the driver. Now that the EU has outlawed gender discrimination this isn’t acceptable any more. There is a clear distinction in the risk of insuring the average female driver and the average male driver; it’s one that insurers are prevented from acting upon. Extensions of these powers to cover other factors are possible including age and disability; these would further impact on the ability for insurers to accurately calculate premiums, for example, in the auto insurance market. Again this presents the case for investing in telematics to devise more accurate assessments of individual risk.
In a recent column we explored the gradually shrinking insurance brokerage sector. Consolidation and growth have been consistent across the sector. Brokers need to be on guard against confidence in this status quo. Technology makes it entirely possible for a small and agile new entrant to the market to take large bites out of existing markets and even, potentially, dominate them over night.
British insurers need to move faster to embrace new technologies in order to defend their current position. We expect to see a lot more initiatives in telematics, health monitoring, etc. before long. Ideally this will lead to a bespoke insurance world where consumers receive policies that accurately reflect their own risks rather than of the generic market segment to which they belong. This could lead to Insurance as a Service provision, something we’ve looked at elsewhere, sooner than anyone could expect.