Harnessing Technology to Narrow Insurance Protection Gap
Article Synopsis :
The global protection gap is a pressing issue. Leading insurance industry think tank, the Geneva Association, has published a new report describing how digital and other modern technologies can and should be harnessed by insurance industry players to narrow protection gaps in both mature and developing insurance markets, by enhancing the awareness, affordability and attractiveness of insurance products and solutions.
The report provides a comprehensive analysis of major concepts of insurance economics (e.g., moral hazard, asymmetric information, transaction costs) applied to the digital age, focusing on how technology can alleviate long-standing insurance market inefficiencies. Further, the study presents topical case studies, including a conceptual framework, from global players such as Aviva, Axa, Bain & Company, BIMA, Google, InShared, Leapfrog, Peking University and Ping An. Key takeaways from the report include:
- Technology will pave the way for higher insurance penetration by tackling long-standing market inefficiencies such as adverse selection and moral hazard
- Digital transformation of the insurance industry could enable a dramatic reduction in transaction costs, including claims settlement, acquisition and administration
- Overall, technology will boost the affordability, awareness and appeal of insurance globally
- Regulators, largely inexperienced in the digital space, are faced with a daunting challenge: how can one promote the development of financial technology, enhancing traditional as well as facilitating new business models, while at the same time preventing failures eroding public confidence? How can a balance be struck between innovation and safety?
Even though the insurance industry’s digital (r)evolution has just begun, technology has already contributed to narrowing protection gaps. Examples, as presented in the case studies of this report, include climate insurance based on parametric covers, mobile distribution of microinsurance, and web-based product design and sales in more mature markets
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Digital Insurer's CommentsWe fully agree – in fact it’s the main philosophical tenet of the Digital Insurer – with the report’s conclusion that digitisation is a unique lever for insurers to develop more affordable, efficient and customer-centric products and solutions, thereby enhancing the societal value of insurance. ‘Digital’ insurance is more affordable, relevant, and accessible from the customer perspective, to the good of insurers and society overall.
The rub, of course, is that digital technologies are both expensive and complex to implement at scale – the scale required by large incumbent insurers. InsurTechs, discussed liberally in this report, will therefore play a key role driving technological and product innovation from the ground up, helping transform the industry.
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