Insurance Innovation – The Cutting Edge of Things to Come

As we draw closer to the midpoint of 2020, owing largely to the industry wide disruption caused by the outbreak of Covid-19, the topic of innovation in insurance has become hotly debated throughout the world. Social distancing measures, mass remote working and the possibility of the workplace dynamic being permanently altered has begged the question; is it now time to start researching and implementing new insurance technology?

Hesus Inoma, Head of Digital & Fintech at Grant Thornton, believes that Ireland – due to its geographical positioning and skilled workforce – is a prime location to be a ‘test bed’ for new tech and innovation and that such measures will begin to seep into Ireland in the next five years.[1] This article will be touching upon some of the larger areas of innovation that will likely enter the Irish market in the coming years. A recent report from Insurance Innovators provides some interesting insights into the future of insurance and it occupies an important aspect of the piece’s source material.

New Insurance Models:  

On-Demand Insurance

The ability for a customer to turn their cover on and off as required is absent from the Irish insurance market at the time of writing. A possible reason for this is the potential decrease in revenue that insurance companies may experience when a policy is not in use.[2] However, it may not be long before on-demand insurance makes its impact on Irish insurance. Of those surveyed in Insurance Innovators’ report, 84% believe that on-demand insurance will become a common market practise in ten years while 48% believe it will do so in just two years.[3] Furthermore, a KPMG bulletin has claimed that ‘it is only a matter of time before on-demand insurance becomes a mainstream way of selling insurance products’.[4] The arrival of on-demand insurance may also be profoundly impacted by the outbreak of Covid-19 and the lockdown on society that it has caused. Given the limitations on mobility and socialisation that Covid-19 has engendered, consumers will become increasingly discontent with paying their usual insurance premiums on motor and home when their risk of claims have been significantly reduced. Such a scenario will only assist the argument for more dynamic insurance whereby consumers only pay for what they need rather than getting hung up on set premiums.[5] This, according to Hesus Inoma, will aid in the development of ‘embedded lifestyle insurance’ whereby individuals, rather than products, will be insured and risk and premiums will fluidly change as the consumer goes about their daily lives.[6] This concept is also being implemented in the transit sector whereby consumers who are embarking on a multimodal journey will be covered for all aspects of their trip, rather than solely being insured for specific modes of transport.[1]

Risk prevention rather than compensation

As new technology becomes more prevalent and permits a lower level of risk across the insurance industry, the need for brokers to integrate these new systems will become more pronounced.  As can already be seen today with the emergence of telematics in cars that allow younger drivers to obtain cheaper premiums, advanced telematics and data will continue to permeate every level of the motor insurance industry in the future. In fact, Insurance Innovators’ report states that over 50% of consulted motor insurers have either released their own analytics-based risk assessment services or have a pilot ready to roll out. Risk prevention and the utilisation of analytics does not stop at motor insurance, there is much scope for these practises to spread to other sectors such as home insurance. For example, the WaterLock device created by inet3 attaches to a customer’s water pipe and, through its use of sensors, can detect when a leak has occurred and immediately shut off the water – preventing a claim and saving the consumer and insurer money. Almost 30% of the polled home insurance providers in Insurance Innovators’ report have either released – or are in the process of releasing – a data driven risk assessment package with a further 48% in the process of researching such a service.[2] Risk prevention also continues to become more commonplace in the region of cybersecurity. Hiscox, who are among several insurers that provide a cybersecurity product, stress the importance of prevention rather than solely compensation. They claim that ‘being aware is half the battle’ and that ‘prevention is better than cure’ when dealing with cyber threats.[3] AIG echo similar sentiments stating that while preventing attacks will always be preferable, the most cyber-resilient companies will implement the most effective protections whilst also being ready to act in the event of a breach.[4] The preventative opportunities that advanced data and new technology create will present an entirely new dynamic within the insurance industry whereby risk – and premiums – will inherently decrease as a result of the new innovations.

New Distribution of Insurance Products:

Digital Eco-Systems and ‘Super Apps’

As the world becomes more connected through the development of technology, so too will the insurance industry as consumers seek to source all of their needs from one location. This has already become routine in the Asian market with giants like Ping An, Tencent and Alibaba providing a ‘one-stop-shop’ for all consumer needs (e.g. banking, shopping etc.). Both insurers and brokers will have to find their place within this ‘Eco-System’ should it enter the mainstream of Western markets. The wide range of data these companies collate allows them to release so called ‘Super Apps’ which permit users to access the majority of their day-to-day requirements from the App. Insurance is included in these demands and the Irish insurance industry must be prepared to coalesce in the event that a similar framework is implemented in the European and Irish market.

Data Analysis

The advent of data and its utilisation within insurance has already begun being integrated by Irish insurance providers. Hiscox Ireland is one insurer which uses its customer’s data to offer tailored insurance to its clientele. They use the example of a technology client, and how they require specific covers to protect their business. Hiscox makes the customer aware of these covers and then allows them to add these various insurances onto one policy rather than having them spread across several different policies.[1] Allianz – through its partnership with Guidewire Cyence – also uses data analysis to assess cyber-risk whilst simultaneously using the Insurtech analytics company Praedicat to further understand liability risk in order to tailor their products to the client’s needs.[2] Hesus Inoma stresses the importance of brokers gaining control of the data that they process making the case that consumers, for the most part, will place as much trust in their broker as their insurer. Therefore, they will be more willing to supply data to their broker for use in tailoring insurance products to them.[3] If brokers are able to control their own data streams, they can carve out a vital portion of the market for themselves that will allow them to thrive even as the industry continues to transform.

Digital Transformation in Insurance:

Input of AI

While not being a part of the mainstream insurance industry, it has been claimed that there is a sizeable minority of insurers who are becoming increasingly comfortable in employing AI into their business structure.[4] According to Insurance Innovators, over 50% of polled insurers are using AI to some degree in underwriting, pricing, marketing, personalisation, creation of product bundles and customer experience personalisation while approximately 22% are using it to a massive or significant extent in the aforementioned areas.[5] Furthermore, as a result of the mass switch to remote working caused by the Covid-19 crisis, AI may well become a more conventional way of assessing risk in insurance. As the insurance industry prepares to work from home for the foreseeable future, innovations that make remote work easier will likely become far more influential.[6] Principally among these will be the introduction of AI in order to alleviate the stress placed upon companies now working in entirely new environments.

APIs

Application programme interfaces (APIs) allow organisations to spread data across different platforms in order to create ‘slick user experiences’ and inventive new business models. APIs have also aided in the construction of ‘open insurance’ whereby insurers make their data available to third parties also using open APIs. An example of this is Allianz opening their own platform, Allianz Business System, to other insurance companies free of charge in an attempt to encourage industry-wide cooperation.[1] An industry-wide accessibility of data would fundamentally change the landscape of Irish insurance and as such, the ability of brokers to exert their place within this will be vital. As previously stated, brokers will need to begin controlling the data they process in order to create their own experiences using APIs as it is clear that data, and ease of access to it, will be of utmost importance in the insurance industry moving forward.[2]

Moving Forward:

As the world continues to change and become more technologically connected and advanced, it is inevitable that the ways of conducting business will change with it. For the time being, the conventional methods of insurance will continue to dominate the industry, but this is not a sustainable. As new models of insurance become more widespread and innovative forms of technology and distribution permeate the overall industry, the insurance sector must adapt to the new environments it inhabits. While this change is forthcoming, it will not be an overnight occurrence, rather it will be a cumulative phenomenon brought on by a variety of different factors and occurrences. 92% of surveyed insurers believe that the existing traditional legacy systems will be fully migrated away from by 2029, while only 34% believe this migration will take place within 1-2 years.[3] This article has hopefully illustrated how early we are in the process of revolutionising the insurance industry. Therefore, the opportunities to expand and thrive through the innovation of the industry are plentiful and those who take advantage of these changes will see the results in the development of their businesses.

Article Reference

1: Personal interview with Hesus Inoma, Head of Digital and Fintech, Grant Thornton Ireland

2: ‘Ireland ‘behind the curve’ when it comes to innovation in insurance’, Irish Times, 26 March 2020

3: ‘Insurance Innovators Report 2019/20’, p. 19

4: ‘Will on-demand insurance become mainstream?’, KPMG, 2017

5: Personal interview with Hesus Inoma, Head of Digital and Fintech, Grant Thornton Ireland

6: Personal interview with Hesus Inoma, Head of Digital and Fintech, Grant Thornton Ireland

7: ‘Insurance Companies in the New Mobility Service Market’, Meeting of the Minds

8: ‘Insurance Innovators Report 2019/20’, p. 9

9: “Prevention is better than cure’: How to cover your business for cyberattack’, Irish Times, 26 March 2020

10: ‘Cyber insurance claims: Ransomware disrupts business’, AIG, 24 May 2018

11: ‘Insurance Industry gets Personal’, Irish Times, 26 March 2020

12: ‘Digital Agenda: A round-up of the latest worldwide digital initiatives for clients and brokers from Allianz Global Corporate and Speciality’, Allianz, June 2019

13: Personal interview with Hesus Inoma, Head of Digital and Fintech, Grant Thornton Ireland

14: ‘Insurance Innovators Report 2019/20’, p. 33

15: ‘Insurance Innovators Report 2019/20’, p. 34

16: ‘How the Coronavirus Will Change AI Innovation in Insurance’, EMERJ, 14 April 2020

17: ‘Insurance Innovators Report 2019/20’, p. 31

18: Personal interview with Hesus Inoma, Head of Digital and Fintech, Grant Thornton Ireland

19: ‘Insurance Innovators Report 2019/20’, p. 36

This article was compiled by Tom McGrath, General Insurance Assistant at Brokers Ireland.

Disclaimer

Although the writer has made every effort to ensure that the information in this book was correct at press time, the writer and Brokers Ireland do not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause