Article Synopsis :
Earlier this year, the European Insurance and Occupational Pensions Authority (EIOPA) convened a round-table to discuss the benefits and risks of digitalisation for insurance providers and consumers, as well as potential obstacles to effective innovation. This report is a summary of that discussion. Though Europe-centric, many of the key findings apply globally.
The impact of digital technologies in the insurance value chain:
- Digitalisation impacts all stages of the insurance value chain with sales and distribution links most impacted to date
- Large digital natives (e.g., Amazon, Google) could enter insurance leveraging advanced digital and data analytics capabilities
- Potential fragmentation of the insurance value chain as a result of new technologies and actors raises a number of supervisory challenges
The advent of new players – InsurTechs:
- InsurTechs are increasingly present in insurance, very frequently via cooperation agreements with established insurers
- A balance must be struck between the principle of proportionality and ensuring a level playing field (same risks, same rules)
- Supervisory authorities may increasingly leverage the data analytical expertise of start-ups for supervisory processes
Big Data and the Internet of Things:
- Big Data enables the development of more personalised products and services and improves the accuracy of risk assessments
- Big Data may improve the availability of insurance for some consumers, but consumers with higher risk profiles could face exclusion issues
- Ethics and fairness questions arise regarding the use of certain types of personal information
Blockchain and smart contracts:
- Blockchain use in insurance is still limited, but the growing number of insurance-specific use cases show blockchain’s great potential
- Blockchain will likely first be implemented in commercial lines, reinsurance, and for intra-group transactions
- Smart contracts make sense for parametrics insurance, catastrophe bonds and travel insurance (e.g., plane ticket cancellations)
- Customer empowerment, peer groups, improved digital experience and incentives to behave responsibly within the group (e.g. via sharing of profits) are the key characteristics of P2P insurance
- P2P insurance can be provided either directly through an insurer or through a broker/intermediary in cooperation with a licensed insurer
- Supervisory authorities should consider whether there is a case for developing specific regulation for P2P insurance
- Enterprise insurers must undergo a lengthy digital transformation process before being able to harness the benefits of AI
- AI seems to have greatest potential in the area of claims management
- Supervisory scrutiny could focus on the transparency and reliability of algorithms
How can regulatory authorities encourage financial innovation in the insurance sector?
- A consumer protection framework and financial stability must be balanced with stakeholder freedom to harness the benefits of financial innovation
- Regulatory sandboxes, innovation hubs and public-private partnerships are three different types of initiatives to foster financial innovation
- Key supervisory principles such as technological neutrality, proportionality, product consistency, market integrity and consumer protection must be respected at all times
Link to Full Article:: click here
Digital Insurer's CommentsBig Data and the Internet of Things, blockchain and smart contracts, peer-to-peer insurance schemes, and, last not least, artificial intelligence. Convening a roundtable to discuss the future of insurance it would be hard to pick four better topics.
As for regulatory authority and its role in all this, a hallmark of ambitious tech start-ups is their blatant disregard for existing rules and conventions in hot pursuit of what’s right by the customer (see: Uber, Lyft, Airbnb). This ‘code first, seek permission later’ mindset is, in our view, InsurTech’s most potentially disruptive trait.
Link to Source:: click here