Top digital transformation themes for insurance in 2023

With geopolitical crises, natural disasters exacerbated by climate change, and multiple uncertainties arising from inflation and new regulations, the aim of insurance to protect people and businesses from risk will not be any easier to achieve this year.

However, as digital technologies continue to evolve, the industry has unlocked potential new opportunities to prevent and mitigate risks to make the world more resilient. With access to more granular and even real-time data as a foundation, utilising Artificial Intelligence (AI) and Machine Learning (ML) is opening up new possibilities for previously inaccessible risk pools, underwriting, risk assessment, claims management and personalised customer experiences.

Several major technology trends such as quantum computing and the metaverse remain far from being widely applied in the industry. Others, such as virtual care solutions, telematics and predictive analytics are already having an effect on how the industry operates, and on the nature of risk pools themselves. In 2023, it's our expectation we'll see insurers increasingly separate technology hot-topics from hype, with a shift in focus to mature and effective technologies.

Beyond the hype, these are the developments in digital transformation that Swiss Re's Pravina Ladva expects will bring the greatest advances to the insurance industry in 2023.

The digital transformation of adjacent industries such as healthcare, mobility, manufacturing not only makes new (real-time) data sets available, but it can also change the nature of risk itself. For instance, with autonomous vehicles that enable driving with ever less human intervention, risk factors are shifting from drivers to autonomous systems. At the same time, cyber risk has become both a fast-evolving peril affecting all risk pools and a growing line of business for re/insurers.

Changes like these require insurers to work more closely with their customers and technology partners to mitigate risks early on, paving the way for technological advances to be exploited in a secure way.  

I see the rise of business collaboration and ecosystem partnerships continuing to grow in 2023, shaping the insurance value chain. With more sophisticated distribution partnerships, for example where insurance is embedded in a customer journey, more people can be reached, and their needs better understood.

The insurance industry has already invested a lot in improving customer journeys, but there's still more to do as: the insurance customer experience is still far from being as attractive as those in other industries. Today's digital consumers expect personalised and flexible offers at the point of interest. Insurers can be much closer to customers much faster thanks to digital processes that create an end-to-end view and harness automation.  

Digitising core operations is a pre-condition not only for engaging in digital ecosystems but also for meeting evolving consumer expectations and staying cost-competitive in a changing insurance industry. In 2023, expect insurers to take advantage of new technologies. An example of this is leveraging AI for speech and text analytics to automate customer interaction, providing additional insights for improving customer experience.

While digitalisation and new data insights allow insurers to create new opportunities for customers, they must ensure the trust of customers by demonstrating strong data privacy and cyber security.

Re/insurers help companies, households and societies with risk transfer capacity and long-term investment to mitigate and adapt to ESG risks such as climate change. Increasingly, with risk knowledge from big data they also have an important role helping businesses understand and act on ESG.

Thanks to digital innovation, the modelling of risk with more granular data and analytics provides exceptional risk information. This allows insurers to understand the financial consequences related to ESG risk and to rate a risk based on individual exposure and propose tailored solutions to manage the risk. With new solutions such as Sustainability Compass by Swiss Re's Corporate Solutions unit, users get access to digital twins of assets and activities to analyse and explore ESG risks, including climate-related, with extraordinary insights.

The availability of new data sets, as well as the adoption of predictive and AI models, for example in underwriting, poses important questions around explainability, fairness, inclusion and equity. Independent of AI regulations being enacted – notably the European Union's Artificial Intelligence Act – investments in new AI driven insurance solutions must ensure fairness and trustworthiness. There are many factors that constitute trust in digital solutions. But particularly when it comes to AI systems that are used in decision-making processes, transparency is paramount.  

Here digital technology can be of great service to insurers. It can enable customers to access, track and manage their transactions, claims and policy updates at any time at the click of a button – to foster the explainability and transparency needed for customers to trust AI driven insurance solutions.

When it comes to grasping the current issues of digital transformation in insurance, it's great to get input from an established external perspective. Fresh from the Consumer Electronics Show (CES) in Las Vegas Jim Harris summarised his unique insights for Swiss Re on the occasion of the WEF. The Canadian is considered as one of North America's leading thinkers on disruptive innovation.

Globally we are facing the highest inflation in decades. Tech can be massively deflationary. With Zoom or Microsoft Teams, we have no long-distance costs, and we get the added benefit of video. Last year in Davos I was on a three-way conference call using WhatsApp with no long-distance costs. This example is also important because the resistance to tech and new business models can be profound within large organisations, especially if their existing business model and profit engine is threatened. At the same time organisations can't just focus on the tech aspect to thrive – culture change, training, and education is as important.

Imagine this: A 16-year-old son is driving the family electric vehicle on the freeway and decides to drive at 100 miles per hour. As the car accelerates beyond 80 mph a voice from the dashboard comes on, saying: If you drive for one more minute at this speed your insurance premium will increase by USD 5,000 a year. If you drive for two more minutes at this rate it will be USD 10,000 a year. And if you drive for three more minutes like this your insurance could be suspended altogether. At three minutes the governor will be turned on so that you can no longer drive faster than 10 mph above the speed limit.

Lemonade, a smartphone-based insurance company out of New York City, says it can settle claims in a record time of three seconds. Compare this to a claims settlement average of eight weeks if you had a car crash in the 1980s.

You can only apply for Lemonade coverage on your smartphone. So it aims at millennials and GenZs, who are generally apartment dwellers. Because the process is entirely digital a new policy can be bound in minutes. The company offers tenant insurance for a premium of as little as USD 5 a month.

Given that it costs a legacy insurance company USD 450 or more in underwriting for the first year of a new policy, insurance companies were never interested in USD 60 a year premium policy.

Additionally, Lemonade uses the cloud, AI and 18 fraud algorithms to evaluate risk when deciding to offer a new policy and for claims. The company hopes to have 80% of all claims instantly adjudicated and settled.

So the use of technology is likely to profoundly transform the insurance industry over time.

A staggering 94% of car accidents are due to driver errors. As we move to autonomous systems, think about the 40,000 people who won’t be killed on North American roads every year, or the 2.5 million people who won’t be maimed. But if you sell auto insurance, you’re going to witness the disappearance of a USD 500 billion a year market.

If the market size reduces then auto insurance and P&C insurers may no longer sell retail to end consumers, instead auto companies may bundle insurance in their products to insure their autonomous systems.

Over time insurance companies will increasingly focus on partnerships with auto makers.

Today, Tesla vehicles have 85% fewer accident per million miles travelled compared to legacy vehicles without autonomous features. This has allowed Tesla to offer its customers auto insurance at 20% to 30% less in premiums. Given the 85% lower accident rate, it can also be more profitable than traditional companies offering insurance to gas vehicle owners. This is a pertinant example of how digitalisation enables and accelerates disruption.

“The Prius Effect” is a fascinating phenomenon. Once Prius drivers were given real time data on their fuel consumption it changed driving behaviour. Our family purchased a Prius in 2004. My wife commented that once I could see my real time consumption, I began driving like a grandmother; slow to accelerate and coasting to stops in order increase fuel efficiency.

Real time data feedback is a simple but powerful tool to change behaviour and can immediately reduce energy consumption by 5% to 15%.

Also, real time reporting of financial transactions can help cut fraud. One of the benefits of loading all my credit cards into Google Pay is that I get real time reporting of the transactions. If something looks unusual, I can take action immediately. But if I only see something on my monthly statement 30 days after the transaction is posted to my account, the fraudster has had 30 days to do damage.