Innovation: a risk or an opportunity for insurers?

Ask most insurers today what keeps them awake at night and they will come up with a fairly predictable list: regulation; the fragile global economic recovery; lack of investment opportunities; and natural disasters. But fast forward a few years, and surely innovation and technological developments will feature far more prominently. Innovation emerged as the No. 13 “risk” in the most recent CSFI Banana Skins Report in 2013. But is it a risk or an opportunity? For those insurers that embrace these developments early on, I believe technology will become an opportunity. Either way things are going to change.

Insurers need to be part of the solution

Technology impacts the way we do business. It allows us to improve our customer communications, while teaching us more about the behaviours that impact risk. We are using data to improve the accuracy of our pricing; manage the claims process more efficiently, and innovate in a way that is relevant to the customer. As technology evolves, the potential to get more granular data for risk assessment as well as claims mitigation is an advance that should be embraced by all.

Every day we are seeing a myriad of advances in the evolution of “smart homes” equipped with technology that allows the home to be monitored and controlled remotely thereby improving security and safety, reducing the risk of domestic incidents, increasing energy efficiency, and improving consumer practices. In the area of health, technology is shifting the focus towards prevention. Wearable sensors will generate huge amounts of vital data for clients, healthcare providers and potentially insurers. In both instances there is a potential link to the insurable risk.

But the key to turning this into a business opportunity is knowledge. We must work closely with those at the heart of these innovations. This allows insurers to evolve alongside these technological developments. For insurers to be relevant in this “new” connected world, they need to be part of the solution not a victim of innovation.

Driverless cars will change the Motor insurance market

Driverless cars are another innovation we cannot ignore. It is no longer a question of whether, but rather when. The UK has already started trials as part of a multi-million pound government supported programme. And extensive testing has already been done by Google and a number of global car manufacturers. So whether we embrace these innovations or not, there is inevitability about this development that will change the world of motor insurance.

For those prepared to embrace change and adapt their business models, it could become an opportunity. It won’t be for everyone. Some may choose to exit the market; some may become niche providers; and some may seek to reposition themselves as service providers. The evolution will be gradual from semiautomation to full automation with each stage demanding a different response. But ultimately most observers agree that the focus will move away from the driver more towards the manufacturer or the software provider. And while traditional insurance as we know it today may disappear, new business models will emerge with more of a commercial focus.

Opportunities for new partnerships

But a lot still needs to happen. The jury is out on who will be liable and who needs to assume risk. New and potentially complex regulation will be required country by country but also coordinated across borders. The phenomenon of driverless vehicles is on its way with widespread implications and as with connected homes and health based innovations, the time to engage is now. That means working closely with manufacturers, software providers and regulators to better understand the impact of these innovations on insurers and the best possible outcome for customers. New forms of partnership will likely emerge as a consequence, beyond traditional distribution agreements. If insurers want to be relevant and profitable in this new world there is no time to waste. It’s time to buckle up, look in your rear view mirror, and recognise that these innovations are getting closer every day. It’s time to embrace and engage with partners to ensure insurers keep pace. Bart De Smet CEO Ageas.

Bart De Smet’s opinion counts.