Insurers Ignore Disruptive
Technologies At Their Own Peril
By Adrian Guttridge, executive director of global insurance services at Xchanging
The ways in which technol- ogy can both transform and estroy traditional mecha- nisms for providing services
to customers are far-reaching. Disruptive
technologies specifically need to reshape
the insurance industry. Failure to adapt
to these technologies can leave a major
insurer looking as obsolete as brands
such as Kodak or EMI do today.
Disruptive technology is rapidly
advancing, its impact has a broad scope
and it has a significant and profoundly
changing effect on the global economy.
These disruptive technologies that supplant older processes, rendering old
skills and organizational approaches
irrelevant, need to be encouraged to advance the insurance industry as they will
result in significant economic value.
Indeed, disruptive technologies, such
as the increasingly established telematics, must be welcomed and have a
definite place in the insurance market.
Examples of disruptive technology
include mobile Internet, cloud technology and 3D printing. For example,
Rolls-Royce recently announced that
it was preparing to use 3D printers for
producing parts for its jet engines.
High-value, low-volume industries
will be the earliest adopters and they
are the ones that will ultimately benefit.
Indeed, it is counter-intuitive that today
the biggest provider of cloud technology
IT services is a book and CD retailer
and that the largest seller of music is a
Using Big Data
There are two specific disruptive
forces that are very close to home for
the insurance industry. One is Big Data.
The ability to harness this will have a
significant benefit for those insurance
businesses that can use it effectively.
Insurers already use new data sources
and sophisticated analytics for more accurate pricing of risk and in turn use this
information to drive new loss-prevention
measures. Where risk has always been
priced on the basis of probability, this
exponential growth in data and the ability to personalize risk to a more accurate
degree takes away that broad brush of
probability based loosely on geographic
data or mortality tables.
This means that premiums can now be
priced to every person’s or business’s risk
profile. From a convergence perspective,
The second significant disruptive
force to the insurance industry is what
will come from the wealth of alternative
capital in the reinsurance market. There
are estimates that U.S. pension funds
alone could inject as much as $100 bil-
lion into the reinsurance market by the
end of the decade. This wall of capital
is going to be looking for innovative
ways to be deployed and reach the end
customer and it won’t respect tradi-
tional distribution networks. This will
lead to commodity capital insurance
trading platforms seeking to bypass the
traditional broker role and break up the
current supply chain.
The need for businesses to move with
the times and turn disruptive technology
to their advantage, in the process trans-
form their operating model, is not a new
concept. IBM used to sell commercial
scales and punch-card tabulators, now
it deals in software, consulting services
and IT services. Nintendo started out
by selling gaming cards, now it’s video
games. Unfortunately, one company
failed to change with the times: Kodak. It
originally produced photographic film,
now it is bankrupt. Kodak was unsuc-
cessful because it stuck too rigidly to its
traditional model. So, will the insurance
players of today soon look as obsolete as,
say, HMV? The simple answer is yes, un-
less they deploy disruptive technologies
in their favor.
Telematics is an obvious and well-established example of a disruptive
technology which the insurance industry
is trying in earnest to adopt. By 2017, it’s
estimated that more than 60 percent of
the world’s vehicles will be connected,
actively monitoring the safety and security of vehicles and drivers.
Research carried out in the UK expects that by 2017, 57 percent of all drivers in the U.K. will switch to a telematics-based car insurance policy. Any new
disruptive technologies will have a huge
effect on consumer expectations. The
creation of these new insurance products, which were not possible before,
opens them up to potential for new markets such as the burgeoning middle-class
areas in Latin America, Asia and Africa.
To many of these, insurance is becoming more accessible and desirable, thus
opening up new revenue streams.
It is clear that disruptive technologies
have the capability to transform industries; wipe them out; grow them; shrink
them; turn them upside down and back
to front. Industries such as publishing,
travel, and music have been completely
transformed by technology. We in the
insurance industry must ignore these
examples at our own peril.
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