Insurance has changed little since the first fire insurance companies were established following the Great Fire of London in 1666.
The purpose of insurance ‒ to protect people from financial loss ‒ remains but the latest innovations are set to change the way the market works for the benefit of insurers, brokers and customers.
Big data, where insurers use more and more sources of information to gain a deeper insight into the risk they’re covering, has huge benefits.
As well as more accurate underwriting and pricing, a deeper understanding of customers can also drive more personalised product development and marketing.
Customers are enjoying a much smoother insurance application process. Instead of customers supplying lots of data themselves, insurers can pull details in from other sources, which saves time and reduces hassle, which allows brokers to spend more time with their customers.
But there are challenges to overcome. Insurers need to be confident in the accuracy and appropriateness of the data they use. And, with the General Data Protection Regulation coming into effect in May 2018, there could be challenges on data consent.
Flagged up by the Financial Conduct Authority as having the potential to provide innovative solutions in financial services, blockchain is a mutual distributed ledger system. This enables multiple parties to share the same information, without the need for validation from an intermediary. Another key benefit is that it is virtually impossible to hack
Some of the first examples of its application in the sector include providing insurance to sharing economy platforms but it also has the potential to streamline paperwork and deliver efficiencies in the claims process.
To explore the potential of distributed ledger technologies, Allianz together with other insurers and reinsurers have launched the Blockchain Insurance Industry Initiative B3i. Now with 15 members, this is looking at the efficiencies this could drive in the insurance value chain.
Internet of things
With everything from phones to cars and kettles linking to the internet, the insurance sector is set to benefit from this connectivity. As well as enabling the provision of new services, in many areas this will shift the focus from repair to prevention.
In the motor space, telematics is already helping insurers understand more about the risks they’re covering, while also encouraging better driving habits and improving road safety.
Similarly, connected homes, where a building can be monitored with devices such as leak detectors and temperature gauges, will enable the cause of a potential claim to be identified and dealt with before there’s any damage.
And rather than taking out traditional annual policies, by constantly monitoring usage and risk, cover could become much more fluid too.
Drones are delivering huge benefits in claims management. In situations such as fires or floods where it’s not possible for a claims adjustor to gain immediate access, a drone can be flown over the property to determine the extent of the damage. As well as resulting in improvements in customer service due to the speed at which this service can be delivered, repairs can also get started much sooner.
Drones can also be used for risk assessments, either where elements of a property are inaccessible, for instance the roof, or to provide underwriters with a view of the area so they can assess a range of risk factors.
Similarly, drones can be deployed for engineering inspections. Flying a drone around a building removes the need for scaffolding and ladders, which improves safety and can also increase the scope of the inspection.
The volume of data available within the insurance sector makes it a prime candidate for artificial intelligence (AI). Already there are examples of insurers using more sophisticated machine learning analytics to support their staff in areas ranging from social media analysis to pricing and claims ‒ and this trend is certain to continue.
As an example, take Allianz-backed US insurer Lemonade. In December, thanks to one of its chatbots AI Jim, it was able to settle a claim in just three seconds. This included cross-referencing it with the policy details, running 18 anti-fraud algorithms and transferring the settlement into the policyholder’s bank account.