sigma 06/2015: Life insurance in the digital age: fundamental transformation ahead
The life insurance industry is at a crossroads: new technologies pave the way for a revolution in the way insurers write business, handle data and engage consumers. Swiss Re's latest sigma study Life insurance in the digital age: fundamental transformation ahead looks at how life insurers have adopted some of the capabilities now available and how the future may take shape. It explores issues such as the use of Big Data, cognitive computing and how digital data can help insurers broaden their reach.
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New technologies pave the way for a revolution in the way life insurers write business
Digital technology is set to fundamentally change the business of life insurance. For example, in underwriting new information sources and means to store and mine data, or simply automate existing processes, can reduce the length and invasiveness of risk assessment, improve risk selection and refine policy pricing. Automation of underwriting – a growing trend – will be pushed to new frontiers by developments in cognitive computing, while Big Data and new analytical tools will progress the still-nascent stage use of predictive underwriting in life insurance.
Data sharing platforms for end consumers will reduce the cost of collecting health information and provide a more complete view of customers for more accurate risk assessment and pricing. Also, the rapid spread of internet-enabled wearable devices and ubiquitous connectivity are enabling new ways of information gathering. The amount of digital data generated automatically, inexpensively and non-intrusively is growing exponentially. Insurers can use this information to, for instance, better understand a person's health status and hence also risk selection.
Engaging with consumers
In distribution, the importance of new channels facilitated by the internet, smartphones and social media is increasing. New technologies can enhance consumer engagement with life insurance by making the application process easier and by using rewards programmes and techniques such as gamification. Digital information and predictive modelling tools offer opportunities for more granular client segmentation and better identification of clients’ needs. In addition to better targeting the existing customer base, new technologies also offer the potential to reach new customer segments.
To harness the full potential of the digital age, insurers need to review their investments in technology, talent strategy and adapt their business models. Some life insurers are partnering with start-ups to build their own data analytics capabilities. Technological developments could spur new operating models for existing insurers and enable them to provide new services beyond traditional insurance.
New technology presents opportunities, but also gives rise to new challenges for life insurers. One is lack of clarity and consistency around regulations on data protection and privacy. There are also regulatory challenges with respect to the use of digital technology in cross-border selling. Further, life insurers will not want to alienate consumers through their use of technology and data analytics. Finally, non-traditional players are entering the market, presenting an opportunity for partnership. However, they could also eventually compete with traditional insurers.