Flipping the switch - impact on advisers

01 February 2017 FedGroup
Grant Field, CEO at FedGroup

Grant Field, CEO at FedGroup

Estimates suggest over 500 billion devices will be connected to the internet by 2030. This means that the Internet of Things (IoT) is set to revolutionise every sphere of life, including the insurance and financial advisory sectors.

There will certainly be inherent risks to our connected future, with greater opportunities for hackers to use these numerous entry points to disrupt networks or to sniff out information from our digital footprint to commit fraud or theft.


Predicting behaviour for good

However, growing digital footprints also offer numerous opportunities to insurers as they help to predict behaviour and are rich sources of information to help risk rating.


With the opportunity to track every aspect of life, data analysts have at their fingertips an opportunity for unobtrusive in-depth market research. While this needs to be solicited on the part of the data provider and technology user, the application of big data and advanced analytic tools has the power to revolutionise both short term and long term insurance, with further applications in financial planning.


Individualising investments

In this regard, the greatest opportunities for the adviser is the ability to use data and analytics to better individualise investments, establish financial plans and offer insurance against hard data and facts. This is better than the biased, incorrect or, often, patently false self-reported information supplied by some clients.


This is because human bias and expression, more often than not, does not correlate to actual behaviour. However, with the assistance of hard data from telematics or the use of smart devices to gather information, these biases can be reduced or eliminated and there will be less chance to hide specific facts.


This not only helps advisers to better understand their clients and select the best products for them, but more accurate data and insights can also assist in improving underwriting to secure the best possible premium.


These processes may also reduce the potential for material non-disclosure, which could affect claims, for example.


Improving premiums

Furthermore, with the continued collection of data which establishes trends and patterns, there may be opportunities to regularly improve premiums through continuous underwriting based on monitored behaviour.


This could lead to new products such as dynamic life insurance, which scales in accordance with real-time changes to a client's risk profile. While this has been possible in the past, it was prohibitive due to administrative requirements.


However, IoT and its integration with other systems has the power to change that.


Understand change

This all means that advisers will need to understand the changing product offerings on the back of these advancements, and the devices and technologies that enable them. They would then advise clients on the best option to suit their specific needs, along with the devices and technology that would enable this.


And therein may lie additional opportunities for revenue generation, with advisers becoming a sales channel for IoT devices that integrate with insurers' systems.


However, these advancements will also create direct threats to the adviser. The financial sector is an example, with robo-advisers already commonplace in mature markets. With easy-to-access web-based interfaces, clients now receive financial advice and invest at the click of button. As this continues to evolve, advances in artificial intelligence will disintermediate the adviser.


The truth is, technology is much better at performing certain tasks, especially where emotions can influence decisions. However, an element of interpersonal engagement will, for the foreseeable future, still be required in the sector. It will therefore be advisers who best understand these new technologies, embrace the way they are changing the industry, and accordingly adapt their business model who will survive and thrive in the information age.


And those who adopt technology to change how they find and secure business, and engage with tech-savvy consumers to still offer a human touch and individualised advice, will carve out a new role for themselves in this rapidly changing landscape.


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