Technology and insurance: themes and challenges

Recent advances in technology are re-shaping insurance but full-scale disruption of incumbents seems unlikely, at least in the near term, our latest Expertise Publication says.

Digital technology, particularly enhanced data capture and analytics, is permanently impacting the design, pricing and distribution of insurance products, and also policy and claims management. This is encouraging new entrants into the insurance sector. Notably, in recent years there has been a sharp pick-up of high-tech start-up firms – or InsurTech – particularly in personal lines and distribution. At the same, established technology giants (BigTech) continue to eye opportunities in the sector.

In response, many incumbent insurers are seeking to upgrade their digital capabilities, especially in order to boost customer engagement and collect data about new risk pools. In some cases, insurers have increased spending on research and development to foster innovation in-house. Some are working with BigTech, while other insurers are investing directly in and/or partnering with start-ups.

Some tech-led initiatives in insurance will inevitably fail, not least because at its core, insurance is a complex business. However, there are reasons to be hopeful that the investment in new technologies will ultimately help incumbent insurers adapt and remain relevant to their customers.

InsurTech and BigTech do not pose an immediate competitive threat to established insurers. Historically, most innovation in insurance tends to happen incrementally, influenced by gradual shifts in consumer behaviour, risk-absorbing capabilities and the regulatory framework. Nevertheless, insurers do need to keep on top of developments because over time, future market entrants could build on the infrastructure currently being created to offer new risk protection solutions that are genuinely disruptive.