- Where Insurance & Technology Meet

Which Comes First, Technology or Insurance?

Back in the day (the first decade of the 21st century or so), there was a lot of talk about ‘alignment’ between technology and the business of insurance.  We got some sense this year that alignment might be turning into interleaving, with technology and the business of insurance becoming a more singular entity.  We’ll offer a few examples and would be interested in your thoughts.

IT’s driving us in different directions

Over the years, automobile insurance has been following a path towards commoditization.  Politicians and regulators  have played a role in this.   But insurers have added impetus as well,  with the heayy use of technology to drive out cost by standardizing marketing, underwriting, service, and claims.

And then came Telematics/Usage-Based Insurance (UBI).  A growing number of insurers are taking the opportunity to use technology to gather and communicate vehicle use and driving behaviour for underwriting, marketing, and claims.  The jury is out on the ultimate penetration rate in North America, but 20%-30% of personal lines volume by 2020 is frequently cited.

But,  UBI is only one product of advancing automotive technologies (of which telematics is a subset).  As our Insurance 2023 colleague, Catherine Kargas from MARCON, has pointed out in this space, the rise of autonomous vehicles, combined with demographic trends could substantially reduce premiums in the standards automobile market.

And Catherine is not alone.  Bill Berkley, Chairman of W.R. Berkley made similar statements in recent remarks in Canada.  Steve Kuhn, head of fixed income trading at Pine River Capital Management noted in November that the possible impact of autonomous vehicle technology on insurance premiums called for a short in Progressive Insurance stock.

Tech giveth, Tech taketh away, Tech insureth

The history of computer hacking tracks the rise of computer technology itself.  As documented in Wikipedia, in 1994, shortly after after Al Gore invented the commercial internet, Russian hackers transferred $10 million from Citibank to accounts around the world.

Insurance carriers began to see opportunities to underwrite these types of risks.  The first offerings were extensions of existing coverages with restrictive wordings and exclusions.   In addition, there was low general awareness of the actual risks by consumers and brokers.

However, recent entrants are taking a slightly different approach, which involves technical security professionals to be deeply involved in the analysis of the risk profile, development and marketing of the product, and selection and pricing of the risk.  This,  combined with growing awareness of the commercial consumers of the risks, is causing a substantial increase in activity and sales.

Implications for insurers, brokers,  and IT:  #ICTC2014 is the place to meet and discuss…

We think the Telematics/Autonomous vehicle discussion and the rise in cyber insurance are indicators of the impact that technology is having on business and the business of insurance.  And, as a result, there are opportunities for insurers and brokers to utilize IT resources in new, innovative ways.  And for IT to show value at different levels of the business.

The Technology Conference 2014 is an excellent venue for conversations along these lines.  We are developing an agenda which focuses on the common space between insurance and technology.  You can see details at the ICTC2014 site.

What do you think?

Are you seeing more overlap between the business of insurance and technology?  Is this a trend in your mind, and what could in mean for IT and the Business?