Insurers need to embrace the digital revolution and change model
The digital revolution threatens existing business models and is inevitably leading to the development of new approaches, Seraina Maag, head of Insurance for Europe, the Middle East and Africa at AIG, said during her keynote speech in Munich.
The impact of change is far-reaching and is not restricted to famous examples such as Kodak, Nokia and the US video rental chain Blockbuster. “Even the very traditional insurance business model is in danger,” Maag said.
While the insurance industry has existed for a long time, this does not mean it is immune to ‘disruptive innovation’ and new developments that replace current business models, she said.
The AIG executive urged insurers to extend their business models. “We need to provide companies with solutions to problems instead of merely paying for losses,” Maag continued. This will be made possible by the analysis of large amounts of data, she added.
Yet this is precisely where the industry needs to catch up. Insurers typically find it difficult to find young data specialists. This is because they generally find it less appealing to analyse insurance data than to work for technology enterprises in Silicon Valley.
Maag quoted a recent Deloitte study that found that some 98 percent of data experts end up working for technology firms. “We have to make do with the remaining two per cent,” she said. “We must find ways of acquiring more data specialists.”
Maag expects that the so-called Internet of Things will be the beginning of a new technical revolution that will affect all industries. It will be driven by technological progress and the low cost of new technology at high volume.
Ten years ago only 500 million technology devices were connected; today it’s 10 billion to 20 billion. By 2020 the number will have increased up to 50 billion, said Maag.
While this huge change should be the source of new opportunities, it also entails new challenges for insurers and risk managers, she continued.
“The multi-billion number of communicating devices means multi-billion access points to penetrate a company’s IT system,” she explained. Increasingly, cyber risks threaten not only confidential data but also tangible assets such as machines, buildings and financial assets, she added.
Connectivity and automation are increasingly posing new liability questions. “Who is responsible when a semi-automatic truck has an accident caused by the system and not the driver?” asked Maag.
When insurers use the digital revolution to their advantage they can find new opportunities such as crowd sourcing. This enables companies to develop new products and solutions with the aid of innumerable internet users.
US insurer Allstate has already been very successful with this approach. Allstate wanted to improve its motor insurance risk models and turned to the statistical model crowd sourcing platform Kaggle for help in 2012.
Within 90 days, various teams of data analysts had come up with more than 1,000 new risk models, three of which were chosen as winners by Allstate. The winning teams received a total of $10,000. An additional $15,000 was paid to the platform provider. “By using crowd sourcing, insurers can reduce their costs and maintain their competitive edge,” Maag concluded.
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