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Digital and Analogue: Tails and Heads on a Single Coin

Back in the dying days of 2015, I posted on insurance organizations that were in the process of disrupting themselves.  So where did we end up?  Let’s take a look at the journey and see where we stand and where we are going.

Are we behind the times?

Insurance organizations have been tagged as laggards and luddites.  In the earlier post, I contended that this was a gross mis-perception and suggested that insurance practitioners were anxious to adopt new technologies to support new insurance coverages and programs in order to create new business models.

However, the challenge at that time was the continued reliance on ‘legacy’ technologies which ranged between aging and obsolete.  These systems were built to handle ad hoc insurance operations, in specific areas: underwriting, claims, finance, marketing, and distribution.

Sharing data among the silos was challenging.  Interfaces to the systems were custom-made, requiring redundant coding.  ‘User-friendly’ screens were ‘friendly’ in name only.

This made us sitting ducks for disruption.

We are moving away from behind times…

In our current environment, we are using the word ‘disruption’ to describe the new digital tools that eliminate unnecessary manual tasks and enable new product and services.

Telematics is a good example.  Putting devices into cars to measure all manners of vehicle technologies – engine, transmission, electronics, etc. -provided new opportunities. Underwriters could benefit by analyzing risk associated with the driver. Claims could benefit by analyzing behavioural and environmental factors immediately before an accident.

However, data sets were huge, requiring sophisticated systems to interpret not just data, but the changes to the data.

The result was a new look at systems.  In addition to IT professionals, insurers started to hire mathematicians – sometimes by the dozen –  to work with the new systems.  Interpretation of the data started to shift from underwriters and claims managers to the math gurus.

Is this the future?

Not in the short term.  There will be changes, but the nature of insurance is dynamic, looking for risk and finding effective mechanisms to mitigate and manage consequences. In short, there are too many moving parts, some of which are more analog than digital (uberimus fides, e.g.).

On this basis, there will be lots of new techniques that will be a blend of fully digital tools that manage ‘routine’ personal insurance programs,  and selected niche products that continue to be handled by experienced staff and existing technologies, sometimes supported by analytics.

That said, there are changes that will have profound impacts.  We are in the age of ‘InsurTechs’; new start up companies developing sophisticated technologies to make insurance better, easier, faster, more accurate, and engaging.

For example,  Lemonade, which has built systems that handle simple rental and homeowners policies.  One of Lemonade’s unique features is use of artificial intelligence (AI) to adjudicate claims.  It holds the record to close (and pay) a claim in 3 seconds.

A percentage of Canadian insurers are actively developing products and services that focus on digital exclusively.  Some of the visible  players are MunichRe Canada, Aviva Canada, Intact, Sonnet, Northbridge, RSA, and AIG.  There are others that are just beginning.

We are also seeing leadership from the broker community.  This includes in-house developed tools and methods to emulate direct distribution.  As well, some brokers are focussing on new exposures driven by digital enterprises, with cyber-risk coverages.

That said, for many others, digital is a ways away.  A mix of digital and traditional seem to be the path for the foreseeable future.

And we have a place to go….

This is a dynamic environment, so exact predictions are dangerous.  However, there continues to be existing programs and products for some foreseeable time, mixed with new, disruptive products and services.

In this latter area, Insurance-Canada.ca is providing a one day event –  InsurTechTO’17 –  on 6 November 2017 at the Westin Harbour Castle.  We are assembling a faculty that are working in the InsurTech world.  These experts will be demonstrating methods, tools, and outcomes used by the InsurTechs.

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