The insurance industry is well-known for its conservative nature, but that’s a characteristic that’s now having to evolve as the industry faces the digital age. No area of commerce, insurance included, has been spared from the massive, digitally-driven shifts that are hugely increasing consumer expectations for customization, personalization and real-time responsiveness. Additionally, the disruptive capability offered by digital technology has also opened the field to increased competition from existing insurers who go digital, and from completely new entrants. In this dynamic global environment, insurance companies simply cannot afford to sit still.
For these reasons, trending tech topics such as artificial intelligence (AI), the Internet of Things and blockchain are rapidly becoming hot topics in these most traditional of boardrooms.
For an industry that specializes in understanding and managing risk, the technical status quo has simply become too inflexible to adapt to future need, and as a result, too risky! Furthermore, digital interconnection which enables direct private data exchange between businesses is going to be a huge part of the insurance industry’s transformation, partly due to the need for greater efficiency, but also as a result of the need to partner with other firms to enrich products. Insurance players – big and small – will need to compete on this basis.
A different attitude
PwC’s 2017 CEO Survey indicates that insurance industry leaders aren’t resisting change – on the contrary, they’re starting to embrace it. Consider the following:
- 67% of insurance respondents see creativity and innovation as vital to their organizations, more than other financial services sectors.
- 61% are exploring the benefits of humans and machines working together, higher than any other financial services sector.
This apparent willingness to innovate aligns with the results of the Global Interconnection Index, a market study published by Equinix in 2017. The Index projects that the banking and insurance industry’s interconnection bandwidth could grow at a 61% compound annual growth rate to 2020, when it is expected to have the highest installed interconnection capacity of any industry globally (totaling 958 terabits per second, as shown in the chart). That’s higher than even traditionally interconnection-heavy industries like telecommunications and cloud and IT services.
This shows that interconnection is key because it enables the real-time and self-serve user experience that insurance consumers are coming to expect.
Consider for example, AI-powered virtual insurance agents, or chat-bots, that help handle many common customer service issues. These are designed to work on-demand, eliminating the wait for a live agent to return a message or to work through a line of callers on hold. Many-to-many connectivity is essential to link up the various parties involved, by collecting, analyzing and acting in real-time on the data the customer is supplying. Proximity between the parties, wherever they are, is needed to reduce latency and deliver the high-performance connectivity essential on a live call or chat session. To achieve all of this, direct connections are the safest way to transmit the data being exchanged, much of which may be sensitive to individuals.
Enabling that direct, proximate, secure, many-to-many connectivity around the world is the essence of interconnection.
Leveraging current technical trends
We can get a glimpse at just how transformative digital can be for the insurance industry by looking at some examples of how companies can or have harnessed important tech trends like IoT, AI and blockchain.
Internet of Things (IoT)
- Sensor-equipped devices like fitness wearables can measure a person’s activity, diet, and vital signs. This can help health insurance companies assess and predict health, which potentially means fewer customer ailments … and fewer claims.
- Telematics-based car insurance, in which insurance rates are influenced by a customer’s actual driving frequency and habits (reckless vs. safe), relies on IoT sensors to supply the data for the analytics to help determine “good driver” rates.
- Smart home monitoring systems enable homeowners to optimize security and lower the risk of break-ins through IoT-powered devices like connected doorbells, which activate motion detectors, deploy night vision and allow users to speak to whoever is at the door from anywhere in the world.
Artificial Intelligence (AI)
- AI-powered, customer-service chatbots are better equipped to meet the expectations of younger customers for a real-time touchpoint and customized assistance, while fulfilling a company’s need to cut costs – and chat-bots will only get more powerful as voice recognition technology improves. They can already be remarkably efficient. New York based insurer Lemonade employs a chat-bot, “A.I. Jim,” which was recently credited with paying out a claim in under three seconds – a process that usually takes far longer, even for straightforward claims. Elsewhere, Chinese company Zhong An has been established as a complete, online-only insurance carrier, which is heavily reliant on AI-driven agents to operate, as well as deliver an enhanced customer experience.
- AI can also bring drone technology to a new level of utility for insurers already deploying drones to hard-to-reach disaster areas to record loss and damages. For instance, when AI is added to the mix, drones have increased computational abilities that might allow them to spot damage in a photo unapparent to the naked eye, or to make on-the-spot decisions about how to use the data they are capturing and speed up the claims process.
- In blockchain, transactions are time-stamped and immutable, so identities are secure, and all data is far more trustworthy. This means that fraud is more easily detected, which could have profound implications in the insurance industry, where some 65% of all fraudulent claims go unnoticed. According to the Institute of International Finance, some $60 billion of fraudulent claims are submitted annually in the U.S. and Europe alone, so any meaningful reduction would bring substantial benefits to insurers’ bottom lines.
- Blockchain’s dependability and security could also enable new offerings like “smart contracts” – self-executing agreements that were largely theoretical before blockchain. For instance, a life insurance smart contract could immediately release funds to a beneficiary upon the death of a policyholder through electronic checking of death certificates. By eliminating (or dramatically reducing) the need for human involvement, claims processing is accelerated, error and delay are reduced, and improved service is delivered to an insured’s greatest area of interest.
In the above and many other ways, innovation and interconnection in the insurance industry will remain inseparable as it continues to evolve. Check out the Global Interconnection Index to see forecasts about projected growth in interconnection in banking and insurance, and in industries worldwide.