Insurance industry adapting to stay ahead of emerging risk

Insurance is the classic grudge purchase. There are few if any other products we will ever buy that we hope never to use. We don’t buy motor insurance with the intention of being in a car crash, we don’t buy health cover with a plan to get sick and we certainly don’t want our homes to go on fire when we purchase house insurance. Even when we take out a life insurance policy, it’s in the knowledge that someone else is going to benefit from it.

But car crashes happen and houses go on fire and we need insurance to protect ourselves against such eventualities. Fortunately, insurance companies are extremely good at managing risk and providing that protection to their customers. On the other hand, they have also tended to be quite conservative and slow to innovate.

There is change afoot, however. “Insurance is adapting to not only keep up with but keep ahead of emerging risks,” says John Kelleher, head of corporate risk and broking with WTW Ireland. “It is no longer the slow and conservative industry some might imagine. There has been a strong shift towards innovation in recent years and that trend is only accelerating. It’s driven by technology, competition and evolving client needs. There is a relentless focus on improving the customer experience and mining big data in the smartest ways.”

The industry is turning to technology to streamline and improve how it engages with clients, he adds. “We are embedding this across all processes, from risk quantification to underwriting and claims management. Big data is giving us more insights than we have ever had, allowing for the creation of bespoke products and increasingly sophisticated pricing models. Our clients are at the heart of everything we do. They are demanding tailored solutions, more personalisation and quicker response times. Generic solutions no longer fulfil client needs and demands and that is where technology brings a competitive edge.”

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PwC technology advisory partner and insurance sector lead Darren O’Neill believes evolving customer needs and preferences will drive far-reaching changes to the traditional insurance product suite. “Customers will increasingly want personalised solutions presented in the context of their day-to-day lives, be it while buying a car, buying a pension and planning for retirement, managing their health or starting and running a business. Customers expect insurers to go beyond their risk-transfer obligations and offer end-to-end solutions, covering risk prediction, prevention and intervention and to underpin those services with a seamless customer experience.”

The Irish industry is actively engaging in the development of new technology-enabled solutions. “The competitive success of Irish insurance depends on innovation, which is driven in no small part by collaboration,” says Insurance Ireland chief executive Moyagh Murdock. “One way to look at innovation is as a hedge against disruption and rapid industry change. By innovating, companies can keep pace with fast-evolving competitors, customers and technologies without getting left behind. That is why the Irish insurance industry came together with a number of stakeholders to establish instech.ie, where established businesses and start-ups can join forces to create the next generation of solutions.”

InsTech aims to be a bridge between start-up technology companies in the insurtech space and established companies in the insurance industry, according to its chief executive Gary Leyden. “Technology has given the industry the ability to do new things, but companies haven’t been using it,” he says. “Like a lot of regulated industries, insurance companies have difficulty with legacy systems which present technical barriers to using new technologies.”

But the new wave of insurtech firms is helping the industry overcome those obstacles.

“In the motor space, insurers are integrating telematics to deliver real-time information on what kind of driver you are at an individual level,” says Leyden. “You get a better price for being a better driver. Ultimately, this leads to better driver behaviour.”

Usage-based insurance is another innovative product gaining traction on the market. “You might only drive one day a week,” says Leyden. “The whole concept of mobility is changing. The same journey could include a scooter, an e-bike, a train and a car. Insurance companies are building platforms around mobility and Irish companies like Inaza are helping them to do it.”

Kelleher sees even greater scope for this technology. “With the increasing shared economy, what if this could track and assign premium allocations to respective drivers within a household or car-share arrangement?” he asks. “What if this could be used as an education tool to physically warn drivers when they are driving in a way which might increase insurance premiums?”

Innovation goes beyond pricing and cover models and extends to climate action. “Our industry has an important role to play in helping others understand their ESG and climate-related risks, so that they can report on them, and so we can try to manage and insure them,” Kelleher points out. “Innovations in this area include sophisticated weather modelling and risk analytics systems that allow for real-time risk assessment globally. These techniques are part of a bigger aim to work closely with our clients to embed a climate change culture.”

Artificial intelligence (AI) is also making its mark. “There are many very interesting and innovative examples of AI being deployed, including conversational AI for virtual customer assistants,” says O’Neill. “Other uses include the assessment of images of damage submitted via a smartphone and interpreting and processing contents from documents including medical assessments, identity cards and so on as well as searching for unusual patterns in large data sets to detect fraud.”

Kelleher believes blockchain will play an increasingly important role in the industry. “It will allow for more protected data sharing. It improves both security and transparency. From claims management to premium payment, optimising this technology streamlines processes for both consumers and insurers. And it also offers protection against fraud, which is one of the major risks within the insurance industry.”

Looking to the future, he says insurance is set to continue its journey of evolution and innovation in the coming years. “It’s being driven by new technologies, changing customer expectations and increasing competition. Those that are agile and can adapt to these changes and embrace new opportunities will be the ones that succeed.”