The uprising of disruptive innovation
As we approach the half-way mark of 2016, it is difficult not to notice the uprising of disruptive innovation that is upon us.
Technological innovations are progressively transforming practically every industry sector and traditional business models today, including that of the insurance industry.
The pace of transformation
The insurance industry has traditionally been slow to transform; often taking years to adapt and implement, however technology trends will force the industry to change the way it does business in the future.
Many insurers may have to reinvent themselves in fundamental ways in order to adapt as technology continues to impact our daily lives.
The majority of trends within the insurance industry are either related to technology or have technology as one of its drivers, ranging from the upsurge of the Internet of Things (IoT) to cyber insurance.
Internet of Things (IoT)
The internet of things (IoT) is the network of physical objects — devices, vehicles, buildings and other items — embedded with electronics, software, sensors, and network connectivity that enables these objects to collect and exchange data.
• Wearable technology such as activity trackers are a good example of the Internet of Things, since they are part of the network of physical objects or "things" embedded with electronics, software, sensors and connectivity to enable objects to exchange data with a manufacturer, operator and/or other connected devices, without requiring human intervention; and
• Home technology enables people to communicate with electronic devices in their home such as smart thermostats. Innovative devices and apps are simplifying tasks, making better use of resources, and transforming the way we live.
Insurers are increasingly leveraging the Internet of Things (IoT) for various purposes to gather and transmit information, including identification of customers’ needs and risks.
Big Data insights
Big Data is a term for data sets that are so large or complex that traditional data processing applications are lacking. Accuracy in Big Data may lead to more confident decision making, and better decisions can result in greater operational efficiency, cost reduction and reduced risk.
Insurers are using Big Data to acquire information and insights from various sources, including social media, which can be used to make claims processing faster and essentially, eliminate fraud.
Usage-Based Insurance (UBI)
Usage-Based Insurance (UBI) is a type of vehicle insurance whereby the costs are dependent upon the type of vehicle used, measured against time, distance, behaviour and place. This differs from traditional insurance, which attempts to differentiate and reward "safe" drivers, giving those lower premiums and/or a no-claims bonus.
• Pay-as-you-drive (PAYD) is low mileage insurance where the insurance premium is calculated based on the number of kilometres a vehicle has covered.
• Pay-how-you-drive (PHYD) is a method of fixing the premium of the customer by assessing their driving style.
• Manage-how-you-drive (MHYD) provides guidelines to drivers about best driving practices.
Auto insurers are shifting toward Usage-Based Insurance (UBI) which will help them to enhance their claim handling capabilities and enable them to perform better customer segmentation based on usage and/or driving behaviour.
Cyber insurance
Cyber insurance is an insurance product used to protect businesses and individual users from Internet-based risks, and more generally from risks relating to information technology infrastructure and activities. Risks of this nature are typically excluded from traditional commercial general liability policies or at least are not specifically defined in traditional insurance products.
The demand for cyber insurance is increasing as more businesses want to protect themselves from unforeseen cyber-attacks which could be hacking, phishing, worms, viruses, spams, etc.
Unleashing the potential
Overall, 2016 has the potential to be a more transformative year for the insurance industry. As increased disruptive innovation occurs, insurers must evaluate how these trends will impact business going forward, and grasp the opportunity to reap the benefits and gain a competitive edge or run the risk of lagging behind.
