This article is by Gareth Eggle, Founder of Eggle Consulting, and one of The Digital Insurer’s Digital Innovators for Europe at our Global LiveFest 2018 virtual conference in November.
In ‘Is Insurance Really Broken?’ Gareth asks what role new technology will really play in the fundamental development of the insurance business model.
Since I became more involved in the technological revolution that is focusing on the insurance industry, I have found myself on every side of the debate as regards the effectiveness of the traditional insurance process. I make no secret of my passion for insurance, but is it not often that which we love the most that we are most critical of? Since 2015 (and much before that as well, although with less of an awareness of the new technologies that have since proliferated), I have considered the many perceived shortcomings of the market, and also seen how both incumbents and new entrants are tackling those issues. It strikes me that much of the work being done is evolutionary rather than revolutionary.
Let me develop that point briefly – Artificial Intelligence / Machine Learning / Cognitive Computing; Robotic Process Automation (RPA); Blockchain; SaaS; these are all technological solutions to long standing problems. If we go back to the middle of last century when ledgers were handwritten (or typed), the impact of digital ledgers and other computer based (mainframe) solutions was to alleviate the administrative burden and free up time to focus on more value-add tasks like new product development, customer acquisition, enhanced pricing methodology, etc. The new technologies I mentioned take this a (few) step(s) further, but aren’t really changing anything regarding the construction of the insurance/risk transfer mechanism.
So, this begs the question: if the external innovators are simply trying to make the process of insurance better, is there really anything wrong with the existing proposition that a bit of operational enhancement can’t fix?
There has been a significant investment in digital intermediaries, and one has only to look at the success of Simply Business to see the effectiveness of simplified distribution – their recent acquisition proof, if it was needed, that sometimes it is more efficient to buy innovation than try to create it within a corporate structure – or the wealth of enthusiasm for Lemonade which at its heart focuses on transparent and efficient customer engagement. Other businesses that have been well received by commentators and customers alike, Brolly, Bought By Many, Nimbla, provide their customers with a seamless digital experience that allows them to access suitable products with minimum effort.
Blockchain/Distributed Ledger Technologies, if we are to believe the experts (and having listened to the esteemed Gary Nutall et al. provide clarity on this tech several times, I am very much inclined to), will in relatively short order become ubiquitous, and much like other protocols that have gone before, work quietly in the background of everything to provide more efficient, transparent, and secure data transfer. Ultimately, this will significantly ease the burden on the human to complete simple repetitive tasks in much the same way as RPA is doing. But again, they are not specifically addressing the structure of insurance.
I could dedicate significant text to the impact of AI, but suffice it to say that I don’t think it will do a single task better. Rather AI can do an inestimable volume of individual tasks in a comparatively infinitesimal amount of time, analysing vast quantities of information and providing insights that would otherwise take many millions of human work hours.
Many ‘disruptive’ technologies, in my humble opinion, are not really such at all. They are like the mainframe systems of the late 20th century: providing significant operational enhancements that free up the human workforce to focus on more important functions.
But… What about the Internet of Things?
I would suggest this large emerging technology, my favourite area of innovation, has the power to completely revolutionise insurance. Sensors – be they embedded in manufacturing plants/machinery, installed within buildings, monitoring crops and/or livestock, within wearable tech, in vehicles, infrastructure, or just about anywhere else – will enable industrial scale risk management at a personal level. The opportunity to then reduce the volume of small, attritional losses that are almost impossible to insure, specifically because of the frequency at which they occur, through predictive maintenance and behavioural enhancements could cause a seismic shift in the insurance landscape.
Risk transfer enables innovation, of that there can be no doubt. When one can assess the threat of catastrophe and offset its financial impact, it makes sense to do so if cost effective. Therefore, one could conclude that the existing insurance model will always have relevance. However, I would argue that it is not the only solution the industry can offer.