To what extent is the market being challenged by digital innovation?
Insurance & Reinsurance
In Japan, the emergence of digital innovation in the financial sector, so-called FinTech, was most pronounced in the banking sector at first. Indeed, the Japanese government first responded to FinTech by amending the Banking Act so that banks could own technology companies as their subsidiaries – something which was previously restricted to some extent (the “Amended Banking Act”).
Japanese insurance companies are gradually adopting new technologies to their services, such as IoT (Internet of Things), Big Data and Artificial Intelligence. For example, Sony Assurance’s automobile insurance, where an insured has a “driving counter” installed into their cars, which would monitor their driving; if it shows safe driving on the part of the insured, the insurer will give the insured cash back towards insurance fees. This technology was developed in collaboration with OPTEX Co, a Japanese sensor producing company. As seen in this example, insurance companies alone cannot create new insurtech products because they do not have any resources/knowledge to develop new technology, so an alliance with tech companies or telecom companies is therefore necessary.
The remaining question is whether insurance companies are allowed to own tech companies or telecom companies as their subsidiaries in order to take full control of the new technologies. Technology development and telecoms are not included in the list contained in the Insurance Business Act regarding the scope of business in which a subsidiary of insurance companies may engage. As stated above, the Amended Banking Act allows banks to own subsidiaries that provide IT and other technology to enhance banking activities and benefit the banks’ customers. However, the Insurance Business Act was not amended to introduce similar modification of allowable activities. Therefore, it is questionable whether insurance companies may own tech companies or telecom companies under the current regulatory system.
Currently, there are a number of digital platforms looking for opportunities to expand their service offering, including into the Australian insurance market. At the moment, this is largely a positive for the insurance industry as it is creating new opportunities for distribution. However, if these players seek authorisation as insurers and issue their own products, this is likely to create even more competition in an already very competitive market.
One significant issue that has emerged with consolidation in the industry is the challenge of integrating legacy systems. The cost of replacing or integrating existing systems and technology is substantial. Those insurers that are able to adapt their systems, and make use of technology and insurtech to deliver insurance services in a more cost effective and consumer-friendly manner, will gain market share and potentially be attractive targets for acquisition.
The Danish market is certainly being challenged by digital innovation. The market is by many in the industry expected to be transformed by digital innovation such as telematics devices, distributed ledgers and connected devices. As a consequence, insurers on the Danish market must be prepared to adapt to new distribution channels (mainly cloud-based). Insurance companies that cannot invest on developing in this direction may lose substantial business opportunities.
Digital innovation is becoming more and more important on the Polish insurance market. Distribution of insurance is also becoming more multichannel. Internet and mobile applications have gained increasing market share, especially in the segment of standard products. Innovative tools are helping insurers and insurance intermediaries to analyse their customers' needs and are being used to assess the probability of insurance events (insurance mathematics).
Nevertheless, when compared to other European jurisdictions, the Polish insurance market is still quite undeveloped in terms of the use of digitalisation and digitisation. Some regulatory barriers still prevent Polish insurance companies from offering insurance protection or providing ongoing services to insured persons by means of electronic communication only. This is opposite to the banking market which is highly digitalised.
The main obstacle to the development of the digitisation of insurance services stems from the law. For example, there is the need to obtain written consents from customers at key moments related to insurance coverage. This also applies to written declarations and written consents to access medical data for the payment of benefits.
However, Polish insurers as well as the regulator are becoming more and more aware of this weakness. Many new initiatives and discussion forums have been developed recently with a view to adapt the insurance market to current trends and expectations of policyholders, who want to be able to acquire insurance services using electronic communication.
Therefore, the digitalisation of the insurance market in Poland is one of the key opportunities for the next few years.
Many insurance companies are developing their digital innovation capabilities while facing challenges and trying to understand this new era is reshaping the insurance sector. Active use of digital platform as an important sales channel resulting positively growth.
Digital developments open new doors to insurers at every stage of sales, thus insurers are now under pressure to go digital, unless they might be behind the deepened competition in a new platform.
In many ways, digital innovation has yet to come to the fore in the insurance market. However, the challenges created by such innovation are increasingly relevant. The growing sophistication of digital technology gives rise to cyber-security threats and risk of data breaches. The nature of the insurance market itself is also being challenged by digital innovation. We are seeing an increasing trend towards risk prevention rather than insuring against risk. Advanced technology has created safer cars and smarter devices which can prevent household damage, thereby mitigating risk and reducing premiums. Insurers will have to adapt to the technological needs of the market or risk being left behind.
In order to rise to the challenges created by digital innovation, insurers must seek to create innovative products, which protect against data loss or cyber damage. In addition, the introduction of automation into the workplace will change the nature of many roles in the insurance industry and the market will have to adapt by reducing administrative and operational support, in favour of skilled resources such as analytics and software development.
Driverless cars / autonomous vehicles present particular challenges for the motor insurance industry. The existing driver-centred Irish legislative framework will need to be updated to facilitate driverless cars on Irish roads. The UK has proposed a single insurer model for driverless cars, where both the driver and the driverless technology are insured under one policy. While this has not yet been considered by the Irish legislature in any meaningful way, it can be anticipated that the Irish legislature is likely to follow the UK approach, given similarities between the existing road traffic frameworks in both countries.
The London Market is expected to be transformed by digital innovation such as distributed ledger technology (“DLT). From the sharing of identical information across networks, to the cryptography-based protections built into the technology, DLT represents an exciting development in the fight against cybercrime for insurance industry stakeholders.
Similarly, the harnessing and use of Big Data (a term referring to the increasing amount of digital information being generated and the analytical technologies which are being developed to make sense of this data) will change underwriting as insurers will have far greater access to personal (or at least risk-specific) information than ever before. With more personalised information and with automated processes, for example automated claims handling, insurers are seeing an opportunity to offer customers new product lines with potential cost savings.
Adapting to new business models will require significant investment (whether in research and development or acquisitions) by existing market players and start-ups are attracting funding. New market entrants that design their business models around new technology and the use of digital information may be able to steal a march on their competitors. In an overcrowded market, many existing product lines are likely to struggle without adaptation to the new digitally-reliant environment.
Digital innovation forces insurance companies to redefine how to conduct insurance business and what the primary risks are. With the last couple of years’ surge in both amounts of data available and the sophistication of the tools to analyse and exploit the said data available, insurance companies face both new opportunities and new risks. The insurance market is therefore greatly challenged by digital innovation, with Big Data and easy-to-use analytical tools probably being two of the more eagerly anticipated challenges to master at the same time as cyber risks are one of the current top emerging risks, which, together with regulatory challenges, most notably in the form of the General Data Protection Regulation entering into force next year, will probably prove a litmus test for which insurers – old and new – will adapt enough to not only survive, but thrive in this new digital landscape.
It is therefore important that insurance companies look over their willingness to adopt new technology and be open to new ways and ideas. Depending on how far insurers will be pushed to digitalise their business offerings and their models for selling insurance products and indemnifying policyholders, it is also not hard to see how this opens up the field for cyber-based newcomers and other tech-savvy players.
Digital innovation has been one of the major challenges for the insurance market in recent years. The insurance sector in Germany is traditionally more conservative than other sectors and traditional business models have to be changed without disrupting day-to-day services. While many insurers are already now offering digital vehicles such as mobile phone apps, studies have shown that a large number of insurers do not have the necessary technological capabilities by just using their internal resources.
Furthermore, traditional insurers have recently received competition from insurtech entities. Whilst insurtech previously took on a supporting role for the most part, various insurtech entities are now starting to carry on insurance business themselves. Unlike traditional insurers, insurtech entities will be working predominantly or exclusively digitally; both in terms of selling their products and claims handling. As insurtech entities are currently still in the planning phase and, so far, have not underwritten risks, it remains to be seen whether they will catch on.
The market is certainly being challenged by digital innovation. Retail and plain vanilla insurance products have been underwritten online for many years, and various price matching engines make it easier than ever to find the right price for a given plain vanilla product. As the development of computer software and hardware continue, we will likely see a similar trend for more sophisticated and complex insurance products.
Digital innovation is currently being used in preliminary stages within the insurance industry, mostly by facilitating comparing different insurance products and placement of insurance within the population; use of technology to facilitate sales and adjustment of claims is starting to grow; the regulator is taking a cautious approach to the use of technology and we have not seen aggressive approaches by the industry to try and test the market. We certainly hope the use of technology helps improve penetration within an underdeveloped market.
Pursuant to IA Circular No. 45 of 2014, all insurance companies are required to maintain “electronic copies of all company (paper) documents easily accessible in the event of hazardous incidents...”. This has resulted in implementation challenges for the affected companies. Likewise, the speedy development and rollout of ever increasing methods of marketing and distribution of insurance material through digital means has created challenges not dissimilar to those faced by insurers in other jurisdictions.
Digital innovation is having an increasing, although not rapid, impact on the insurance market in the U.S. Although there are a growing number of insurers with digital capabilities and InsurTech entities, most insurance today is still distributed offline. Perhaps one of the greatest challenges for insurers is to meet the growing demands of the millennial generation, whose members notoriously favor online, personalized products and services that suit their individual needs and requirements.
As with almost every industry, digitalisation has also reached the insurance sector. It is, however, still lagging behind other service industries in terms of implementing digital innovation. This is partly due to the dense regulatory environment, which makes it more difficult for insurance undertakings to adopt new technologies while complying with regulatory requirements.
Established market players are thus challenged by innovative start-ups that are willing to disrupt the sector. Startups such as Amodo, which has received funding by Austrian-based venture capital fund Speedinvest, analyse data gathered from digital devices to allow better assessment of a customers’ risk exposure and product requirements. While this approach allows further individualization of insurance products, concerns as to the use of sensitive data will have to be addressed.
Recently, key players in the Austrian insurance market have declared digital innovation as their main development target. In 2016, one of the leading insurance companies in Austria and the CEE region announced an investment program in the amount of EUR 500 million aimed at adapting procedures and products to the change in customers’ expectations and needs owed to digital innovation.
Digitalization has been a most relevant tool in facilitating and extending insurance activity. The law widely admits electronic signature for all kind of transactions. Insurance regulation encourages the use of electronic and digital mechanism and it is widely used by companies and all the channels of insurance distribution. The local market is flexible enough to adapt quickly to digital developments taking place in the main insurance centres.
Several InsureTech start-ups have been established within the last years and we believe that further start-ups will follow. FINMA tries to make Switzerland a FinTech/InsureTech hub and gradually provides for a proper regulatory environment. We also observe that traditional insurance companies have recently started to take digital innovation seriously and that they invest a considerable amount of time and money in connected projects.
One of the main challenges for the insurance market facing digital innovation is the exposure of privacy and confidentiality derived from piracy or computer attacks. To face this, insurance companies must manage the associated risks with information technology, related to failures in the security and operational continuity of computer systems, errors in the development and implementation of such systems and the compatibility and integration of them, inadequate investment in technology, among other aspects.
With the significant increase in e-commerce transactions over recent years, the IRDAI has recognised the sale of insurance products online. The IRDAI has also recognized web aggregators (entities engaged exclusively in solicitation and procurement of insurance products online) as insurance intermediaries and has issued specific regulations for the licensing of these entities.
In addition, the IRDAI has also recognised the issuance of e-insurance policies.
The IRDAI has also issued the “Guidelines on Insurance e-commerce” of 9th March 2017 (E-commerce Guidelines) which laid down provisions for setting up Insurance Self-Network Platforms (ISNP) by insurers and insurance intermediaries for undertaking insurance e-commerce activities in India.
Recently, IRDAI issued the Brokers Regulations which states that a broker can solicit insurance products online and by telemarketing and distance marketing in line with the provisions specified for web aggregators under the applicable laws.
Many insurers are beginning to adopt technology in their operations to engage and retain consumers and manage increasing operation costs. As large quantities of sensitive and personal data are stored on servers or held in the "cloud", effective risk management to minimize and contain risk of breaches is paramount.
Digital innovation has also brought about new and emerging risks (e.g. cyber-attacks and use of autonomous vehicles) and evolution of traditional lines of business like motor insurance (e.g. to cater to new consumer technologies such as Uber). The insurance industry needs to regularly gather and review risk data and loss scenarios brought about by technological innovations to enhance the relevance of insurance coverage provided.
This is a very new and controversial subject in Brazil. Regarding internet sales, in addition to the legal issues surrounding the security and validity of insurance contracts, there is a natural aversion by brokers to direct sales, precisely because it excludes them. However, most insurers are studying ways and means of taking advantage of digital innovations, whether in terms of providing information about their products, the possibility of direct interaction with their policyholders or offering and selling products. Internet sales are likely to grow in the coming years.
The Insurance Commissioner announced that he will support any new company which will be fully digitalized. This support means, substantial lowering of the initial requirement for Insurers’ licensing. Once such a company will start operating, it will challenge the other Insurers.
Digital innovation and InsurTech companies are growing quickly in Belgium. The new technologies and possibilities they offer to the insurance consumer certainly challenge the well-established insurers. Some of those have already invested in InsurTech companies.
InsurTech companies are also challenging well-established legal principles, leading to the conclusion that, at some level, Belgian legislation may no longer be appropriate for the insurance industry of the 21st century and will need further modifications.
The digitalization of the French insurance industry is already underway and will bring about interesting changes in the near future. Connected objects and smartphone apps, to name the most obvious, represent promising new ways of having a better and quicker access to both consumers and data, which can be relied upon to better target potential clients and assess / price risks with greater accuracy.
As is often the case with technological innovation, this technology has great potential for both strengthening the position of certain major and long-established market participants (who are developing insurtech products and funding or acquiring startups) and causing market disruption, due to the arrival of innovative outsiders, who may try to significantly alter consumer experience and replicate, to an extent, what Uber and Airbnb have respectively accomplished in the urban transport and hotel industries.
These opportunities will, however, come hand in hand with new challenges, such as new regulatory requirements (like the processing of personal data European Regulation, which will come into force in May 2018), and new risks, principally in the form of cyber risks (ransomware, identity theft, tech-enabled financial fraud etc.).
There is a broad recognition in the Canadian insurance market that the growth of InsurTech will cause significant disruption to current business practices in the near future. Some domestic insurers have started to embrace digital innovation by, for example, using tracking technology to provide usage-based auto policies or partnering with FinTech companies to provide insurance to the growing sharing economy.
In our view, this challenge applies the same way in Spain than in any other country. Insurers
must be prepared to adapt to new distribution channels (mainly internet) so that sales of their
products (including traditional products) can be concluded through the new channels. Players
that cannot invest on developing this may lose substantial business opportunities.
Digital innovation is one of the greatest challenges to be faced across all sectors of the market. On the front-end of these challenges, we find that big data and other relevant upcoming technologies provide for a set of tools that will bring relevant changes to competition, productivity and client care. The impact is to be felt across all industries, including the insurance sector. The volume, variety and accuracy of the information that is currently available is expected to be used for risk assessment in each insurance product distributed. As an example, digital innovation will allow insurance undertakings to collect information on the insureds’ driving style, the kinds of roads they are used to circulate on so as to better assess the risk associated with that specific insurance policy. The first attempt by an insurer to use such devices in Portugal was announced in 2018. This circumstance will inevitably lead to tailor made insurance policies which will be directed to a very specific individual (subject, however, to data protection rules implemented across Europe).
Furthermore, insurance undertakings are to adjust their communication channels so as to reach specific potential clients, which are increasingly more sophisticated, therefore preventing the necessity to resort to third parties to act as intermediaries.