Risky Business: Traditional insurance in a digital world
A digital world is no longer just a theory…it is reality. Every two days we create as much information as we did from the beginning of time until 2003 and by 2020, it is estimated that the amount of digital information in existence will have grown from 3.2 zettabytes today to 40 zettabytes1. A major factor of this exponential growth in data production is the consumerisation of smart internet enabled devices & the rise of data and analytics. These factors have huge implications for the insurance industry, which has traditionally been very conservative in their entrance into the digital economy. Risks are no longer just in the physical world…but in the virtual too. This also means the unbundling of value chains, new data driven business models, and products that are no longer fit for purpose, or at least, not “digitally ready”.
The purpose of this article is to argue the case for adopting the latest technology for risk profiling, monitoring and proactive claims management, packaged within traditional insurance policies, creating a new breed of “Digital ready” insurance. I will take Health Insurance and the rise of “Technology enabled care” as an illustrative example.
Digitalisation of the value chain
Within this maze of technological advancements there is a massive opportunity for insurers under the following two banners:
- The Internet of Things (IOT) which can be defined as “an intelligent IP-connected network of objects and devices, each with a unique identity and the ability to sense, interact and communicate with each other using embedded communications and processing capabilities.”
- Data optimisation using Advanced Analytics, which has the capabilities to compare “countless different data points historically and with each other, unlocking the potential of data into actionable information.”
These factors present opportunities for insurers to change the set-up of insurance products and how they interact with policyholders enabling:
- The provision of individually-priced insurance products with premiums varying on the basis of real-time data
- Communication with customers via interactive digital platforms and devices, improving the customer relationship and whilst changing the purpose of insurance from reactive indemnity for policyholders to proactive intervention, informing the insured when an increased risk is detected.
This convergence of IOT enabled devices and analytics underpinned by data will impact the structure of the current insurance value chain, creating a new “Digital Insurance Value Chain”:
Current Insurance Value Chain
This emergence of the IOT allows behavioural and biometric data to be captured and analysed, giving insurers far more information than they would previously have had access too, enabling more accurate and reflective risk based pricing and proactive risk mitigation capabilities.
The Health Insurance Product of 2020
Let’s take Health Insurance as an example of this data driven IOT approach to insurance.
According to the Association of British Insurers (2014), Health insurance covers approximately 5.1m people in the UK and pays out approximately £7.3m in claims every day2.
One of the biggest technological development in the healthcare sector has been that of “Technology Enabled Care” (TEC), which is defined as “the convergence of health technology, digital and media communications to help patients self-manage conditions and enable remote monitoring for care providers”3.
This technology has huge implications on the Health insurance claim equation, which has been modelled below and includes example objectives and technology to achieve them:
The data captured from these devices/solutions can be used for risk profiling of the policyholder to better inform pricing, for monitoring purposes and proactive risk management.
As a practical example, if an insured’s health data deviates from a pre-defined “healthy norm” i.e. their body weight dramatically increases/decreases, the insurer is notified and proactive action can be taken to investigate further, which could have resulted in a more serious health concern/claim later in time.
The insured benefits from reduced premiums and more tailored care by agreeing to be monitored, and the insurer benefits from claim/cost mitigating capabilities though data driven insights, as well as the potential for a improved customer relationship.
By using this technology, traditional health insurance policies, which receive health information through form filling pre policy inception, will now have a greater pool of ongoing data to work with, leading to a new product set up:
For insurers wanting to develop a new line of “digitally ready” insurance products, they will need to assess their current competencies against the capabilities needed to develop a data driven business model. There will be a need to integrate a variety of systems that support all aspects of the value chain. They will need to understand the importance of creating “partnership ecosystems” with device providers and system integration specialists, and may consider outsourcing non value adding tasks and focus upon driving value through digital investment.
Bernard Marr (2014) “Big Data: Using Smart Big Data, Analytics and Metrics to Make Better Decisions and Improve Performance”, John Wiley & Sons
2Assocation of British Insurers (2014) “UK Insurance Key Facts”
3Deloitte (2015) “Connected Health, How technology is transforming health and social care”, Deloitte Center for Health Solutions
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