Digital technologies are changing the way we work, live and interact. Advances in data analytics and AI technologies offer huge promise for the insurance industry in particular, with their potential to streamline processes across the value chain, accelerate the shift towards mitigation and prevention services, and facilitate greater personalisation of products. Making the most of these opportunities and ensuring they keep pace with the latest developments, however, will require insurers to step up their innovation efforts. At the same time, they must remain alert to the risks associated with new technologies.
The July 2022 special issue of The Geneva Papers on Risk and Insurance, guest edited by Isabelle Flückiger and Meryem Duygun, examines how digital transformation is reshaping the insurance industry. Some articles focus on the benefits to insurers and their customers, such as improved insurance take up and customer satisfaction, while others analyse related challenges, namely cyber risks and regulatory issues around the use of personal data.
Innovating through digitalisation and technology
The article by Davide Lanfranchi and Laura Grassi, Examining insurance companies’ use of technology for innovation, zooms in on the ways in which insurers are exploiting technology to innovate, based on a sample of the world’s largest insurers. Though the level of innovation varied, they find that 25 of the 30 insurers studied introduced specific initiatives during the COVID-19 pandemic, with a clear tendency towards health insurance. They identify four ‘types’ of innovation underpinning these initiatives – adaption, expansion, reaction and aggression – based on the relevance of the technology employed and whether it is being used to cover existing or new risks. This classification can be used by insurers when developing their innovation strategies.
Satisfied customers are more likely to remain loyal to a company and renew their insurance policies. In Managing customer satisfaction: digital applications for insurance companies, Eckert et al. analyse the relationship with digital transformation. Focusing on four customer touchpoints – contract conclusion, contract modification, event of damage and any further contact – they demonstrate how digital applications can be used to increase customer satisfaction through better sales and marketing, simplifying processes, increasing efficiency and improving customer interaction.
Hu et al. explore whether digital finance has an effect on insurance take up in The impact of digital finance on household insurance purchases: evidence from micro data in China. Their results indicate that it can do so by increasing financial literacy and access to online financial services. Further analysis reveals this to be specific to certain cohorts, namely households in less developed areas with fewer assets and lower income. The effect was also found to be larger for property and life insurance compared to health insurance. These findings indicate the potential benefits of technology for reaching less well-served segments of the population.
In Insurance and wearables as tools in managing risk in sports: Determinants of technology take-up and propensity to insure and share data, Brandon Saliba et al. investigate the use of wearables as risk management tools in sport. Focusing on runners and footballers, they identify three key factors that increase people’s tendency to use such devices: favourable perceptions of and experiences with technology and low cost. The authors go on to examine whether the athletes’ are likely to purchase insurance services coupled to the wearables and share their personal data with an insurance carrier, finding that they are more inclined to do both if they already have positive perceptions of insurance and the industry as a whole.
The trend towards on-demand and open insurance
Though it currently accounts for only a very small share of the market, on-demand insurance is expected to grow in popularity in the coming years. The article by Zeier Röschmann et al., On the (future) role of on-demand insurance: market landscape, business model and customer perception, examines on-demand insurance in an effort to understand its potential impact on the insurance industry. They explain that InsurTechs have taken the leading role when it comes to embracing the trend and encourage incumbent insurers, who have been less enthusiastic, to step up their efforts in order to remain relevant.
In Framework for open insurance strategy: insights from a European study, Willem Standaert and Steve Muylle analyse the trend towards open insurance. Based on interviews with experts from European insurance organisations, they identify regulation and advances in digital technology as key drivers, and outline a number of benefits for both insurers and their customers, including enhanced operational efficiency and the development of novel products. The authors also offer a framework for insurers to use when developing their open insurance strategy, based on three dimensions: type of data, product and the insurance ecosystem.
Currently, gaps in data availability can hinder the insurability of cyber risks. In their article, Cyber risk and cybersecurity: a systematic review of data availability, Cremer et al. draw attention to the problem by providing the first systematic review of data availability around cyber risk and cybersecurity. They highlight how better access to cyber-specific data, without price or permission barriers, will facilitate the development of sustainable insurance products, and how mandatory reporting of cyber incidents would help to improve understanding and awareness among insurers and other key stakeholders.
The General Data Protection Regulation (GDPR) gives individuals the right to access information about how their personal data is used in automated decision making. In Explaining automated decision-making—A multinational study of the GDPR right to meaningful information, Dexe et al. investigate how insurers respond to such requests. This is particularly relevant given the increasing trend towards AI technologies and algorithms in the insurance industry. The results indicate that responses vary depending on the country in which the insurer is based. The authors explain that this is because the language in which the regulation is written has an impact on how it is interpreted – a finding with significant implications for cross-border regulations.