DISRUPTIVE TECHNOLOGIES: THE INSURANCE AND CAPTIVE IMPACT

Insurance is one of the world’s oldest industries, however the process of assessing risk and collecting premiums and paying claims hasn’t changed a lot over the years, primarily because the insurance industry has been one of the least innovative to date. This is however about to change as the industry looks to the future as both artificial intelligence (AI) and digitalization will create huge opportunities and will play a significant role as these growing technologies have the potential to disrupt the entire industry. So what will change and how will this affect the captive industry?

The underwriting process will change through the use of digital technology; becoming streamlined, efficient, and a better experience for the customer. In Australia for example you can use your smartphone to take a picture of something you want to insure, such as a bicycle, upload the picture, request a policy and within a few seconds you get an offer that you can accept or decline. We are beginning to see the use of telematics, being the flow of information from connected devices to insurers, who use the information or data collected for risk assessment and pricing. All of this means insurers will spend less time and money on underwriting as AI can automate the entire process. This can be extended to scanning a customer’s profile for trends and patterns in order to offer the right products and amount of insurance, while protecting insurers from riskier customers.

Turning to healthcare, since 2000 more than US$ 200 million has been poured into healthcare venture capital, mostly targeting biotech, pharma and devices that while important, mostly increase the cost of healthcare, but only a fraction of spending has been targeted at consumers to empower them to play a more active role in managing their own health. If this can be fixed – perhaps through the use of apps that monitor different aspects of a person’s health – hopefully this will benefit not only the individual, but the system as a whole.

The traditional claims process means a file can be touched by many employees, however a new process of touchless claims doesn’t require human intervention. This process uses AI and other technology to report the claim and contact the customer. At the same time the system can audit prior claims or even through links with other insurers determine whether multiple claims are being filed and claims patterns monitored in order to cut down on the possibility of fraud through the use of advanced analytics.

There will be changes in risk profiles through the use of AI technologies such as self-driving vehicles, as while they have the potential to reduce risk they would not eliminate risk entirely and will introduce new risks and complexities of risk such as through the failure of the self-driving mechanism or hacking.

There are other innovations such as so called peer-to-peer insurance (P2P) whereby social media facilitates customers to form online networks that share risk. This works as members pay a portion of their premium into a mutual pool, while the balance of the premium is paid to an insurer who acts like a reinsurer funding claims the pool can’t meet because its funds have been exhausted, and also provides services to the pool such as policy administration. Money left in the pool is then returned to members or carried forward to the next year. An example in the UK of such a pool is Guevara who claims to save its members up to 80% on their premiums.

By using social media, social brokers are developing as a new type of intermediary such as Bought By Many (BBM). In simplified terms BBM works by identifying customer segments with poorly serviced insurance needs, e.g. people with heart conditions who need travel insurance. It then groups customers with these similar needs and negotiates insurance on behalf of groups. Similarly, customers with good risks can also be grouped together.

The use of online marketplaces such as Uber and Airbnb allow buyers and sellers to transact in what has been termed the “sharing economy”.

This creates markets for new types of insurance and also brings with it certain questions that need to be answered in terms of the underwriting risk, for example: are those providing services considered employees or contactors? Perhaps we will see insurance move from insuring owners of assets to users of assets.

What does all this mean for the captive industry or the owners of captives? Clearly the customer will ultimately have more choice, and prices should reduce as the system becomes more efficient and more data is captured, making the assessment of risk from an underwriting and claims perspective more accurate. However as new technologies and the use of social media develop, there will be new risks that need to be covered. Captives have traditionally filled the gap in the market as traditional insurers have been reluctant or slow to react. Captives will therefore continue to flourish as their uses develop, so for many it’s an exciting time for the industry, as insurance finally awakens to the new dawn of innovation which could result in a boom time for captives who remain ready and willing to fill any lack of capacity from the traditional market.