Technology in Insurance

On 16 June 2022 RPC hosted an afternoon of talks and panel sessions on the theme of 'Technology in Insurance', the culmination of the firm's TechWeek which brings market experts and lawyers together to discuss risks and opportunities with new technologies within different business sectors.

Whilst panellists commented that the insurance industry had not had an 'Uberization' moment – when new market disruptors succeed in radically ripping up the pre-existing order with new tech-driven solutions – technology has and will continue to radically transform the insurance industry. This impact though has been more subtle than many had predicted. Although there has not necessarily been the predicted tech and data driven 'big bang' transformation of the insurance industry, there are many technology advancements and trends that are transforming insurance products and services as well as the operations of companies within the industry. 

Individually these tech buzz-words - such as blockchain, AI, smart contracts, telematics, machine learning, robotic process automation and internet-of-things – flash brightly in the insurance industry's collective consciousness, taking up innumerable virtual pages of on-line commentary.  Some of these may dim and even fade away, others will continue to shine, and more buzz-words will join them.  It is the combination of all of these multiple technology advancements and trends that together will have the transformative long-term effect on the industry. 

Where are we seeing tech-driven changes across the industry?

Customer facing

Technology has been a key driver for providing new insurance products and innovative services for insured customers. Both existing industry players and new insurtech start-ups have been investing in this space, developing new products, new ways of reaching customers and new digital services throughout a product's lifecycle, all enabled by new technologies. 

• New products are being developed that are created or adapted to take advantage of new technology. Within auto, telematics have for some time enabled usage based insurance, pay-as-you drive and pay-how-you drive products, for example. Parametric insurance – with clear and binary payout-triggers - is particularly well suited to many tech-driven new insurance products, taking advantage of advances like satellite imagery to trigger fast claims payments, or connected sensors like those used by FloodFlash to measure water-depth at insureds' premises. 
  
  
• There is also a significant shift in new insurance products to meet the evolving needs of customers in a digital world. Intangible assets rather than traditional 'bricks and mortar' assets make up more and more of companies' value and revenue generation, and these assets are susceptible to different threats and risks. With ever-increasing automation of activities previously carried out by humans, whether it is in manufacturing, warehousing, driving or services, software rather than human error becomes an ever-important driver for insured losses. Insurance is adapting to face these issues with demand for new innovative cyber-based products and greater understanding of software liability across different industries but the speed of change across the global economy is challenging insurers and leading to protection gaps for insureds.
  
  
• Insurance sales within the retail market have long been moving to the digital world and further drives to improve the effectiveness of marketing as well as technology aimed at improving customer digital experience and sales processes are continuing this trend. Machine learning, AI, use of mobile apps and robotic process automation are key parts of this and insurers and intermediaries are continuing to invest in these areas. 
  
  
• Technology is also driving a shift towards additional customer services connected with insurance products. Insurers and intermediaries are playing a more active role in claims prevention and mitigation, providing tech-enabled advice, disaster/risk warning and other risk mitigation techniques that are designed to add value to their products and benefit both insured and insurer. 

Internal processes and innovation

Although the customer-facing side of tech-innovation within insurance is often the most heavily publicised, new uses of technology within the operations of insurers and intermediaries is no less important. They represent both great opportunities – in terms of reduced costs, better underwriting performance, and market-differentiation – but also significant risks – such as enhanced regulatory, data and reputational risks. However, it is clear that the industry is embracing technology and, although to a large extent many of the changes are incremental, they constitute a significant shift and companies who fail to keep up risk falling behind their competitors. 

Data processing and analytics as well as robotic process automation are key areas where insurers are embracing new technology in their operations, but technology is also providing solutions and opportunities in other areas.

• Better recording, accessibility and use of data by insurers remains a key focus area for technology. Insurers have access to such vast data resources but realising the value within these remain difficult, particularly for insurers with legacy systems. Incorporating this internal and external data into (more) accessible pools is the starting point and firms are investing in solutions to help them achieve this. However, as the data pools expand security, data processing compliance and the ability to monitor and audit the data pools becomes increasingly challenging.
  
  
• Availability of data is just the start and in order to understand, interpret and utilise their data insurers and intermediaries are increasingly looking to AI and other tech-driven solutions. The use of technology in data processing and analytics by insurers is particularly prevalent in modelling and underwriting where insurers are looking to improve their understanding of risks, assist underwriting and provide more bespoke pricing. This does not mean that technology is completely replacing human underwriting – in particular outside the retail market – but it is augmenting the process and providing alternative data driven information, inputs and checks into underwriting decisions. 
  
  
• Tech-driven automation has been and will continue to be important within the industry as participants look to reduce costs and improve customer experience. In particular when combined with AI and improved data analytics, tech-driven solutions such as customer bots can increasingly reduce the amount of time needed from staff across the product lifecycle, from underwriting, through administration and claims, to renewal. 
  
  
• Insurers and intermediaries are also embracing technology across other areas of their businesses. Fraud detection is a good example where insurers can use technology to protect against losses to their bottom line. Other solutions, such as digital twins and the use of the internet of things to monitor insureds' properties and equipment, can help insurers and intermediaries gain a more accurate understanding of an insured's insurance needs and the underwriting risks associated with them. 

What it means for the insurance industry 

It is perhaps the myriad of different tech applications within the insurance industry that has made it more resilient to disruption from any individual technology driven competitor. The recent stock market tumbles of Lemonade, for a time the darling of tech-driven insurance disruptors, along with Hippo and Root are proving that innovative technology does not automatically lead to (immediate) market success, with investors now seemingly keen to focus on underwriting results and less willing to sustain losses for market share in the way they have become accustomed to with other industry disruptors.

However, as we heard from many of the speakers at our 'Technology in Insurance' event, data and technology are the driving forces behind many of the new breed of insurance companies and are key areas for all existing market participants. Almost despite the hype, there is real value and opportunity in well-structured and applied technology and it is clear insurance companies that are open to new technology from a cultural perspective – and willing to invest in it from a financial perspective – are going to be best placed to take advantage. Given the speed that technology moves, those who are not embracing the change may find themselves quickly falling behind.  

Technology will therefore drive and implement change within the insurance industry. But it will also create new risks. 

Failure to comply with data protection requirements can lead to both reputational damage and significant fines – in the UK and overseas.

In addition to data protection regulations which apply across industries, insurance companies operate in the highly regulated financial services environment. Insurers and intermediaries need to make sure that their technology solutions are compatible with their regulatory requirements – such as around operational resilience, governance and fair treatment of customers. 

The UK regulators are looking carefully at new technologies and what the implications may be for the companies they regulate and their customers. With this in mind, the FCA has already published specific guidance for firms outsourcing to the cloud and other third party IT services and more recently published a report (with the Bank of England) providing guidance to firms and setting out regulatory expectations of best practice when using AI and machine learning. There will be more reports, guidance and regulations as insurance regulators around with world try to keep up with changes in technology and tech-innovators need to be mindful of the highly regulated world within which the insurance industry operates.