Insurance Reinvented: Services, Ecosystems, and AI-Fueled Forecasts

Insurance Reinvented: Services, Ecosystems, and AI-Fueled Forecasts

Else Beate Gullestad

Else Beate Gullestad,

Internationally renowned futurist and trendwatcher Tony Bosma, also the founder of Extend Limits, has given the insurance sector some serious thought. What trends and developments will shape the future of insurance? And what measures should a company keen to outclass the competitors take?

Are insurance companies able to cope with all the transformational forces surrounding them? Or will these once seemingly indomitable institutions – these former societal beacons of trust and stability – be replaced by something else? 

No matter what happens, one thing is clear: The future of insurance will be transformed. The ongoing technological progress and its perpetual adoption by consumers is forcing a reformation of the essential elements of insurance. Intermediaries, brokers, consumers, and every aspect of the supply chain will be influenced by the fast advancing technologies. In this new world, it’s not so much about long-term vision but the ability to anticipate relevant change.

Digital services ecosystems
To remain relevant to customers, insurance organizations are looking to transform themselves into platforms of services. For this, their mindset and organizational structure needs to shift toward a diverse ecosystem with flexible partnerships outside the traditional business of insurance.

They also need to enable the delivery of fast-changing and personalized services to future insurance consumers. Meanwhile new entrants are already inserting themselves between insurance companies and customers, thus raising service expectations by providing services that enhance the customer experience.

New value networks will transform the industry from a reactive and incidental consumer relationship toward an intensively proactive relationship. The insurance services landscape becomes a highly sophisticated digital-enabled marketplace, steered by smart and adaptive technologies. For this, insurance companies themselves will reshape to become more like high-tech companies. The future winners in insurance are likely to be those that control and act upon the customer interaction; those that don’t risk becoming marginalized as utility players.

Prescriptive data driven services
The insurance industry has always used data to price risks. According to the European Insurance and Occupational Pensions Authority (EIOPA), risk assessment procedures are mostly being influenced by the developments in data. More accurate pricing and pricing based on the behavior and real-time situations in the lives of the policy holder are becoming the new normal. 

Download Whitepaper: How Insurers can Tame Data to Drive Innovation 

In our future world data will come from a continuous flow from individuals and his or her surrounding environment. The smartest person in the room will be the room itself. These enormous amounts of valuable customer data vary from buying histories to travel data, lifestyle data, medical information and inhouse and outdoor activity data. Lifestyle risks and long-term health risks all become available because of the advances in data collecting and analysis. Genetic screening gives us predictive knowledge about health and all associated risks on an individual level.

The developments in data and connectivity enable insurance companies to place themselves in the center of customers’ lives. It will even change the very nature of risk. Smart surroundings enable insurance companies to prevent risks like burglary by activating extra security measures when needed. Real-time analysis of lifestyles will trigger health-improving services and even disease prevention. These are just a few examples of how prescriptive data enhances future services from insurance companies. A challenging result of this is what this will do to the premiums customers will have to pay.

New regulations about data ownership are becoming more important in the age of data. Financial institutions, like insurance companies, are well positioned to become highly personalized data and services brokers in customers’ lives, even beyond financial services, and play a much bigger role in tomorrow’s society. In this context, trust is key to a bright future of insurance.

Smart connected insurance
The use of artificial intelligence is essential for getting strategic benefits from data. Even beyond using AI to enhance the customer experience, insurers will apply the technology to analyzing customer behavior to minimize risk and recommend relevant services. Continuously fed with data, AI-powered bots will be available 24x7 and be able to deliver a personalized policy within seconds. As speed and relevance become the new pillars of consumer trust (in addition to digital ethics), the increase in AI will result in an increase of consumer trust with insurance.

With AI, insurance companies will also be able to more accurately forecast the future, automate processes (RPA) like streamlining claims handling, detect fraud, make smarter underwriting decisions and minimize unnecessary human interaction. This will help reduce costs, which has always been one of the key drivers of insurance. A key step to start utilizing AI and analytics, is the capabiity to use data strategically – something we helped this Nordic insurance organization and this Nordic Baltic banking group do

Smart software and processes could also remove human bias from decisions and transactions. The world of insurance transforms to a world where customers get risk advice from machines which “know” things before they could happen. Smart algorithms will eventually crawl through our lives not only to minimize risks but also to fight against insurance fraud.

Regaining trust through digital
New technologies can improve trust but also put new strains on it. These stressors include privacy protection, cybersecurity or the fear of too much impact by insurance companies on our lives because of their access to personal data. Other technologies, like blockchain, can result in rebuilding trust as they secure the storage and transfer of personal data. It also could lead to the redefinition of insurance since these traditional institutions will no longer be the mediators of control.

The role of intermediaries will be reinvented as trusted transactions can take place among anyone. It’s vital, however, to remember that the future of insurance and trust hinges less on technology and more on the reality of the regulatory environment and the mechanisms used in future business models. The more transparent and meaningful these business models become, the more societal trust will increase. The industry will need to embrace the goals of the customer rather than focus on being a powerhouse of profit and growth.
 

Related Publication

How Will the Financial Reporting Standard IFRS 17 Affect Insurance?

Although finance and actuary are the two most obvious areas affected by IFRS 17, they are not the only ones. For insurers wanting to keep up, it's high-time to start a comprehensive financial transformation program.