Insurance is not immune to disruption and fundamental change to the industry is coming, fast!

By Greg Booker, CIO, RACQ Insurance

Greg Booker, CIO, RACQ Insurance

As we understand the vast possibilities that machine learning, artificial intelligence, technology innovation and open data will bring us, there are two things the insurance industry should not lose sight of: why insurance was created in the first place; and how changing risks will transform what it means to run an insurance business.

Insurance is fundamentally about pooling risk and sharing losses of the most vulnerable in our communities; helping people when the unexpected happens and they are most in need.

Up until quite recently, our access to data and information for risk modeling has been limited, so insurance has been very much a shared loss. However, as technology, data access and the way we live shifts, so too will the need for and delivery of insurance.

Data, information and affordability
Better access to data and faster, more sophisticated ways to analyze that data, will provide insurers with a high level of understanding of an individual’s habits and lifestyle. We are on the verge of having the capability to access and make sense of, an unprecedented level of information, enabling insurers to more accurately calculate the true risk of insuring people and property.

Better data will ultimately bring a more personalized approach to the cost of insurance. Advances in data mining will give us immediate access to intricate detail about people’s habits, driving style, health, social media profiles, home location analysis, financial capability and credit risk; as well as weather patterns and climate change modeling for their neighbourhood.

The irony is as we gain improved intel around ‘high risk’, it will become increasingly difficult for people who are at highest risk to get access to affordable insurance. Those most in need will be least able to afford or even access insurance.

Let’s take an 18-year old who has just got his license (and remember, we now know everything about his behaviour and have modeled his risk to the nth degree and costed it accordingly), there’s a subsidized cap on CTP insurance, so he has that in case he injures someone else on the road, but there’s no cap on his car insurance. Add government taxes and it amplifies the cost. He’s less likely to have insurance for his car, because he just can’t afford it, but he needs it more than most!

The issue of affordability and access to insurance must continue to be the focus of broader discussion to ensure the most vulnerable within the community are protected.

Better data will ultimately bring a more personalized approach to the cost of insurance

Business process improvement
Data analytics will provide detailed knowledge and information about the quality and cost performance of business partners and just like Uber, a rating system will apply to business service delivery and reputation.

There’ll be nowhere to hide!

From an insurance perspective, this will impact claims fulfillment and should have a positive impact on process improvement from suppliers and partners. Service speed, quality and cost, alongside communication, fairness, accountability, professionalism and personality, will all be assessed by the customer and businesses and cross-rated for others to see at the touch of a button. Community and technology change
Technology is having an increasingly positive impact on mitigating risk in our lives. Our homes and vehicles are becoming smarter at protecting us from harm.

Most new cars now collect crash data and can track your every movement on the road, feeding this information back to a central system for analysis. Vehicle avoidance systems, alerts and alarms notify you to change your behavior. Now manufacturers are working distracted driver crash avoidance systems into car design to combat rising global road fatalities from mobile phone use while driving.

Our homes are smarter and more secure too, with better monitoring and decision-making capability. If you have a water leak in your house, ‘no-flow’ technology will pick up on this and switch off the water, before messaging you to ‘call the plumber’, providing contact details of the top two businesses in your local neighborhood.

Building materials are improving, lowering the risk of damage from extreme weather events. Take Elon Musk’s solar roof for example. For around the same cost of regular tiling, the solar cover will protect your roof in a cyclone and lower your power bill. That blue tarpaulin company just went out of business! From an insurance perspective, the more we can mitigate the risk of damage, the lower the premium needs to be, which is a great result for people and communities.

Asset sharing and mobility as a service also add another layer of complexity to insurance, as we move to a sharing economy and your assets become usable by others.

What this all means for insurance
If you are in the business of insurance, you need to open your eyes to the changing landscape. At RACQ, we always put the member at the center of all-out decision making and ask that fundamental question – how will this impact our member and how can we advocate for fairness and improvement for them?

Traditional insurance must shift with the needs of our changing lifestyles and preferences and the reality is, you must be nimble enough as a business to evolve and thrive.

Big data and smart analytics, asset sharing and technological innovation in mobility, are just the start.

Change is a good thing and has the potential to open the door to new opportunities for the insurance industry, as long as you always bring your thinking back to that fundamental purpose of insurance – to help those people who need it most, when life doesn’t go entirely to plan.