TDI Point of View: Disruption and Transformation – Insurance in the year 2030

This PoV is an assignment completed by a participant in the ADI programme that we are sharing with our wider community, with the permission of the author and the sponsoring insurer. To avoid any misleading associations with the sponsoring insurer, and at their explicit request, this PoV has been published anonymously.

The insurance industry is at an inflection point, and in the next ten years it will disrupt and transform itself into something very different from today. This existential transformation will be primarily driven by three factors:

• Change in demographics
• Technology advancement
• Income inequality

These factors will not only impact the insurance sector but all aspects of human life and business.¹

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Key factors shaping 2030¹

Demographics

The world’s workforce is ageing rapidly, along with this there is a change in where most of the workforce will reside. According to the United Nations (2015) World Population Prospects: The 2015 Revision, although the working population in Asia and Latin America will decline, most of the population will remain in the workforce. The working population in Africa will continue to rise, catching up with other continents. Overall, the world’s total workforce will see a decline with fewer people in the workforce.

Percentage of population aged 15-64, by region, 1970-2030

This change in demographics, especially as populations age, will have a major impact on the insurance business, with the biggest impact on the health insurance and pension sector.

Governments will likely look to fund elderly healthcare, old age pensions, and so on, through increased taxation. Due to their demographics, the impact of this will be most severe in Europe, Oceania and North America, where we may see a steep reduction in the working population’s savings as these are utilised for healthcare and pension shortfalls.

This will create an interesting challenge for the insurance industry: on the one hand the proportion of wallet share to spend on insurance premiums could shrink, and on the other hand there will be more eagerness to buy insurance, in an effort to provide more certainty for the future. To take advantage of this the insurance industry will need to consider affordability.

In addition to this, most of the workforce will consist of digital native millennials who are used to technology and indeed heavily reliant on it.

Both these factors: affordable products and a digital first workforce reliant on technology, will force the industry to accelerate its investment in technology and reduce its reliance on a human workforce.
This over reliance on technology and automation will have an impact on employment and could see around 40m¹ workers displaced, which in turn could create demand for micro-insurance products, as consumers feel less comfortable committing to longer tenure products.

Technology

The slow pace of technology adoption by the insurance sector, means that it stands to be heavily impacted.

AI, deep learning, blockchain, data, IoT, etc will completely disrupt the insurance industry because of a reduced dependence on humans over the next decade.

The industry will use technology to move from a “detect and repair” to a “predict and prepare” model², transforming every aspect of the industry in the process.

The impact of technology will be felt across the whole insurance chain.

Purchasing insurance will take a matter of seconds. Payments and claims will be processed in seconds through smart contract blockchains.

People will have forgotten about manual underwriting and in-person medical checks. Underwriting will have been automated using deep learning models and relying on both internal data as well as external data.

Fraud detection will use AI and neural networks, leveraging both internal and external data including social media for real-time fraud monitoring.

Drones will be used to do the first inspection report for any claims, rather than a field officer. 3D printers will be used for small damages, reducing claims cost.

Income Inequality

The change in demographics and increasing use of technology will lead to income inequality. Highly skilled people will hold a very high proportion of the world’s wealth.

This inequality will lead to an increase in crime rates. Given the high reliance on technology, a large portion of this will be cyber crime, focusing primarily on hacking, identity theft and data theft.

This will see a commensurate increase in demand for cyber insurance as individuals and corporates protect themselves against potential loses and insure themselves against cyber risk.

We will also see an increase in microfinance mostly backed by governments that are trying to protect low-income groups, which will be a large part of the population.

Key insurance sectors in 2030

In this section, we will touch on the key insurance sectors that will undergo a transformation in the coming decade and how they will look in 2030.

Auto insurance

In the next ten years auto insurance will undergo tremendous change. This will be necessitated by the evolving transport ecosystem. In 2015 Deloitte published a paper³ where it talked about four states of mobility:

1. Vehicle remains personally owned and driver driven
2. Car sharing
3. Personally owned self-driven vehicles
4. Shared self-driven cars

For argument’s sake let us assume that all these four states will co-exists in equal proportion in 2030. This would mean that 25% of the vehicles will be autopilot based and shared in 2030, which will straight away lead to a 25% reduction in auto insurance. Similar observation has been made by Boston Consulting Group in its paper https://www.bcg.com/publications/2016/automotive-motor-insurance-2-0.aspx

Now let us add connected cars and connected devices into the mix. These will be the norm ten years from now. With a connected car the probability of accident will be reduced dramatically, ensuring greater safety and thereby reducing the need for the traditional car insurance product.

The question of liability will also arise with the increasing use of autopilot cars. We have already experienced it a year back when the first fatality involving Tesla’s autopilot feature occurred raising questions on where liability lies⁴.

However we look at it, by 2030 traditional auto insurance, as we know it today, will not be a profitable business and would have been replaced by insurance against software malfunctions/breakdown, etc, and people will be paying based on the miles driven.

The other affected sector, in the same way as the auto insurance sector will be fleet insurance, which will be used mostly by corporates.

Life insurance 

Imagine ten years from now someone filling a ten-page document and then getting a medical test done, and then waiting for a week to get their life policy issued. Hard to imagine!

With the increase in life expectancy and advancement in genomics, the life insurance sector will undergo a huge change. People will be aware of what they are most vulnerable to, and the lifestyle changes required for them to minimize the risk. This would have an interesting impact on the life insurance industry.

People will be willing to pay higher premiums for the things they are vulnerable to, while less premium for others. The life insurance industry will have to adapt to this changing customer demand.

The industry will come out with products that just insure against one disease or one organ, etc. This will give rise to Lego type life insurance policies, giving flexibility to the customer to mix and match different policies and different companies to get a complete life insurance package.

We will also have wearables connected to different actuarial databases – ‘the quantified self’. As soon as the consumer selects an insurance policy, their details and all data points related to that insurance will start flowing to a specific database. This data flow will be used to calculate a customer’s personal risk and score based on daily activities, along with the probability and severity of potential upcoming events. This will be used to adjust premiums dynamically.

By 2030, most insurance companies will move away from annualised insurance premiums to a ‘pay as you live’ concept.

These trends will see the emergence of new kinds of aggregators and life insurance stores, from where you can pick and choose the policies you want, giving you the flexibility to change them any time you want. Just like installing and uninstalling apps from smartphone.

Property insurance

Ten years from now smart housing will have become the norm and we will have a more connected world as technology matures rapidly. We will be able to access most of the things in our home remotely using an app. This will mean individuals have greater control and monitoring of their home, which in turn will improve physical security.

With the increase in physical security, individuals and businesses will be less willing to pay high premiums for property insurance. Property insurance businesses will decline and be replaced by smart home or smart company Insurance, where the focus will be more on protecting a property or business against cyber attacks or online fraud.

Cyber insurance

In ten years’ time we will be living in a highly connected world with huge reliance on technology in everything we do. This will also expose us to cyber attacks. Companies and individuals will be spending a major portion of their income on cyber security.

To add to the above, data will have become the biggest corporate asset, and individuals and companies across the world will be ready to make big investment to safeguard it.

In keeping up with the trend, the insurance industry will see exponential growth in cyber security insurance products.

By 2030 this sector will be the biggest sector in the insurance industry, and will be dominated by one of the tech giants or a new startup emerging currently in the market. Unfortunately, given the current state of technology adoption by most of the major insurance companies, the traditional insurance companies may not be able to compete.

Cyber insurance will be divided into the below major sub-sectors.

• Insurance against cyber attacks for individuals and well as corporates
• Data theft
• Data loss
• Data breach
• Identity theft
• Cyber extortion

Natural disaster Insurance

Climate change is having a huge impact on our lives. There is a steady increase in frequency and severity of natural disasters and rapid urbanisation is increasing the exposure to these disasters. A UN report from 2015⁵ stated that “between 2005 and 2015 over 700,000 people lost their lives, over 1.4 million were injured and approximately 23 million were made homeless as a result of disasters, with more than 1.5 billion people affected”.

Total economic losses from natural disasters in the last decade were more than US$1.3 trillion, with total direct losses in the range of US$2.5 trillion so far this century6. In the past decade, average economic losses from disasters were about US$190 billion per year, while average insured losses were about US$60 billion per year7. This century, more than one million people have already lost their lives to disasters.8

Going forward there will be a growing demand for insurance against natural disaster. This will spur substantial growth of this sector, catastrophe insurance pools and index-based insurance solutions facilitating the coverage of disaster risk in highly exposed and vulnerable communities will become a norm9.

Insurance against natural disaster will be one of the best performing insurance sectors in 2030.

Conclusion

In the next ten years the insurance sector will undergo massive change. This will lead to widespread adoption of new technologies, better and innovative products with greater power to the customers, reduction in premium, less claim frequency, but much larger claim value. Products like auto insurance and the P&C sector will see steep decline, while sectors like cyber insurance and insurance against natural disasters will become market leaders. The life insurance sector will transform itself, and will be very different to what it is now.

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References 

• 1 Bain Macro Trends Group analysis 2017
• 2 Insurance 2030 – The impact of AI on future of Insurance
• 3 Scott Corwin, Joe Vitale, Eamonn Kelly, and Elizabeth Cathles, The future of mobility, Deloitte University Press, September 24, 2015
• 4 Mike Spector and Ianthe Jeanne Dugan, Tesla Draws Scrutiny After Autopilot Feature Linked to a Death, The Wall Street Journal
• 5 UN World Conference on Disaster Risk Reduction (2015) Sendai Framework for Disaster Risk Reduction 2015-2030.
• 6 UNEP Inquiry (2014), Aligning the financial system with sustainable development: An invitation and background briefing
• 7 Swiss Re (2014), Sigma report: Natural catastrophes and man-made disasters in 2013.
• 8 International Federation of Red Cross and Red Crescent Societies (2013 & 2014), World Disasters Report.
• 9UNEP Paper titled INSURANCE 2030 Harnessing Insurance for Sustainable Development – Inquiry working paper June 2015.

Other references

• Pragya Saxena- 5 Technology Trends transforming insurance industry- Aug6, 2019
• FMI Insurance – BizTrends2020: How technology is driving innovation in the insurance industry Jan 8, 2020
• Emily Delbridge Upcoming Insurance Technology Trends – May 30 2019
• altexsoft – Insurance Technology: 11 Disruptive Ideas to Transform Traditional Insurance Company with Machine Learning, APIs, Blockchain, and Telematics – July 15, 2018
• Morgan Stanley and Boston Consulting group Insurance and Technology Evolution and Revolution in a Digital World – Sep 8, 2014

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