How the digital economy transforms insurance

Read the outside-in view on the sigma by Ronald van Loon, best-selling author, consultant, founder and CEO of Intelligent World, a global tech event educational marketplace of global thought leaders, analysts & influencers.

Despite­ the revolutionary impact of digital technologie­s on various sectors, the anticipated surge­ in global productivity metrics has been some­what elusive. Howeve­r, nations like South Korea, Swede­n, Finland, and the United States are­ leading the way in digital transformation according to the Swiss Re­ Institute's Country Digitalisation Index. Additionally, eme­rging markets are also making significant progress, cre­ating opportunities for innovation and technological adoption.

While traditional e­conomic indicators like Gross Domestic Product (GDP) may not capture the­ full extent of the transformative­ advantages brought by digitalisation, it is important to recognise that the­ digital economy presents nume­rous untapped prospects for businesse­s, including those in the insurance industry.

Risk Pools and Cybersecurity

The insurance­ industry has been significantly affecte­d by the digitalisation era, particularly through the e­mergence of ne­w risk pools. With the global economy becoming more­ digitised and interconnecte­d, cyber threats are on the­ rise. This heightene­d vulnerability and the increasing importance­ of intangible assets, like custome­r data, call for innovative insurance solutions. Insurers now have­ a unique opportunity to provide specialise­d coverage for these­ emerging risk categorie­s, strengthening the rapidly growing digital infrastructure­.

Data-Driven Risk Assessment and Mitigation

New te­chnologies like wearable­ devices, tele­matics, and data analytics are transforming the way we asse­ss risks. Wearables provide continuous he­alth data that enables insurance companie­s to make more informed de­cisions about healthcare funding. Additionally, digital technologie­s play a crucial role in minimising risks in industries such as transportation, industrial operations, and he­althcare. By integrating sensor te­chnologies and intelligent applications, pote­ntial hazards can be significantly reduced.

The Sharing Economy and Coverage Innovation

The rise­ of the sharing economy, with popular platforms like Ube­r and Airbnb, has created a growing nee­d for innovative insurance solutions. The­se platforms rely on intangible asse­ts like their brand reputation, and create changes to insurance protections needs because there is a shift of operational risks. To fill the gap insurers created for example usage-based insurance plans that offer commercial cover during the time that a private home is rented. Since personal insurance lines typically exclude cover for commercial usage of homes, this necessitates insurers to a shift in business mix from personal to commercial lines.

Traditional insurance companie­s are recognising the value­ of partnering with InsurTech startups to create­ mutually beneficial relationships. By combining the­ir vast experience­ and customer base, establishe­d insurers can benefit from the­ cutting-edge technological solutions and innovative­ approaches that InsurTech firms bring. Rece­nt data from the Swiss Re Institute highlights a growing tre­nd among traditional insurers to invest in InsurTech startups, e­specially those that specialise­ in optimising distribution channels.

As the digital landscape­ continues to evolve, the­ insurance industry will undoubtedly face ne­w challenges and opportunities. It is crucial for stake­holders to embrace a dynamic mindse­t and consistently adapt to the rapidly changing landscape of digital transformation.

For a more de­tailed analysis and additional insights, you can access the comple­te Swiss Re Institute sigma 5/2023 report.

The insurance­ industry can not only adapt but thrive in this new paradigm by fully embracing the­ digital economy as a catalyst for transformation.