Best of 2016: Top 10 Impacts of Emerging Tech on Insurance
Insurance is not insulated from the rise of new technologies improving the connectivity between business and customer -- and customers with each other. Strategy Meets Action partners Karen Furtado and Mark Breading take a look at the future of insurance in their latest report, "The Top 10 Ways Emerging Tech Will Transform Insurance."
Biotech, smart homes, robotics and 3-D printing are just some of the technologies helping people live longer, SMA says. "The implications for all lines of insurance are huge, although this is a set of technologies whose bigger impacts are probably a bit further out," they write. "Insurers would be wise to do scenario planning to assess the implications of possible futures and time frames for medicine and healthcare."
While technology tends toward reducing risk, as society transitions to accept things like driverless cars and robotics, insurers will be navigating a winding path, according to the researchers. "There are scenarios where the artificial intelligence controlling the vehicles goes haywire, or a software bug downloaded to millions of cars wreaks havoc, or a hacker taps into the transportation network and causes mayhem," the authors say. "Similar good/bad scenarios can be conjured up for drones, robotics, biotech, and many other emerging technologies." The big question: Who is liable for these new kinds of risks? The manufacturer, or the end user?
Today, insurers have a relative lack of customer touchpoints relative to their counterparts in banking and retail, for example. But with real-time data streaming in all the time, insurers are gaining more information on their policyholders than ever before. "Insurers will now have the opportunity to create an ongoing relationship with the policyholder rather than a just a payment/claim relationship," say the authors. "This will translate into more interactions with most customers by orders of magnitude, with regular communications to mobile devices, wearables, vehicles, and other devices owned or used by the customer. Insurers should consider the implications of interacting beyond the relatively few (often mandated) communications that have been normal to this point."
Insurance companies will find themselves working along construction, medical, energy, and agriculture companies in a new hyper-connected world, Breading and Furtado write. There will be two fundamental questions for insurers to answer: Which is the best fit for the core competency of the industry, and who will own the customer relationship? "Now, there may be technology device providers, services providers, data aggregators, government entities, and others that collaborate in a partner web to create meaningful value propositions for customers," SMA says. "In this environment, insurers must be part of the ecosystem, aggressively forming partnerships with new types of firms and rethinking the role of insurance in the equation."
Though it may be a decade or so off, eventually driverless cars, commercial vehicles, marine vessels and trains will all begin to emerge. There are two implications for insurers, according to Breading and Furtado. First, commercial insurers will have to grapple with rapid changes in ownership and liability for the vehicles they insure. But eventually, all insurers have an interest in the changes to the transportation infrastructure.
Blockchain contracts are a decentralized way for insurers to guarantee that information exchanged is trusted and vetted. While a "killer app" for digital currency still isn't quite here, the concept is ready to rock financial services of all kinds. "Micro-insurance transactions become more feasible with this kind of mechanism, where a third-party, trusted intermediary is not required," the authors say. "Digital currencies based on blockchain could eliminate exchange rate risk."
Actuaries have been tasked with calculating probabilities since the dawn of insurance but more data means more kinds of data are available to begin predicting the future. "The ability to measure and monitor everything that those insurance products cover in real-time (including people) raises the profile for behavioral sciences," sMA says. "The challenges will be in gaining the experience to create and price products and building up behavioral sciences as a discipline within the insurance company."
Insurance technology startups are proliferating at a rapid rate. SMA says that nine out of 10 of them will fail, but insurers can't afford to ignore what's happening. "The small percentage of companies that will prosper are very likely to include some that disrupt and transform the industry, becoming the Ubers, Googles, or Amazons of insurance," they say. "Opportunities for investment in, partnering with, or learning lessons from these companies are already available and should be considered in strategic planning initiatives."
The insurance workforce is aging, and as has happened in many other industries, automation is filling the gaps left be retirements. Automated underwriting is already relatively popular, but soon artificial intelligence and machine learning platforms could pop up in other areas as well. "It is not difficult to imagine robots (and drones) visiting accident sites and performing damage assessments, robo-advisors providing counsel on investment decisions to customers, rules engines making more and more underwriting decisions, and the automation of other insurance activities," the authors say. "It is unlikely and undesirable for automation to replace all human experts, but it is feasible that automation will allow the smaller number of true experts to multiply their impact and capitalize on their expertise and relationships.
Data is becoming the central currency of our time, Breading and Furtado say. As emerging technology increase exponentially the rate of data exchange and storage at insurance companies, carriers must be congnizant of the risk to their infrastructure and viglant. "The services that are already being created based on this data are astounding and promise to be even more so in the future. But the fly in the ointment is the dramatically increased possibility – even probability – of data being stolen, altered, and misused for nefarious purposes," the authors write. (For more information, including SMA's full report including suggested strategies, contact SMA)