How insurance actuaries can make the digital leap
Is there a digital insurance gap? The latest work from Accenture Research indicates that there is.
Using a combination of qualitative research, economic modeling, and a survey of 4,300 global executives, my colleagues found that digital leaders in industries – including insurance – are growing five times faster than digital laggards.
But research also showed that we are not in a situation where "digital winners take everything" (yet, at least). Some organizations have skipped the digital divide and broken previous performance barriers. We call these "Leapfroggers."
We have previously discussed how insurers can become Leapfroggers in claims. Today we will shift focus and look at actuaries.
There is no doubt that actuaries today face a varied and complex landscape. While the digital age has changed all aspects of insurance, no one in the industry has seen greater changes than actuaries. The amount of new data and information they have to integrate into their work is nothing short of revolutionary.
Below are some of the biggest changes that shape the actuarial functions in the industry.
Changes in business models
Many insurtech partnerships have been developed to enable scaling of operations for new products. These hybrid business models not only act as a channel to penetrate new markets but also help the older operator by improving their technical capacity and testing new products or processes before investing and taking them internally.
The growing popularity of embedded insurance, with its unique covers designed to enhance the customer journey, means that insurance companies must now reduce the complexity of pricing. The cost-plus-profit method is currently the most common practice. This is suitable for simpler industry benchmarking for services provided and hyperpersonalization that replaces costs as a difference maker for the consumer. Read more in our latest report: Reimagining insurance: The new cloud imperative.
Data source and device innovation
There is an ever-growing number of data sources that capture risks and provide insight into customer behavior. These include financial / demographic mosaics and third party data. Some of these physical devices such as wearables, telematics and Internet of Things (IoT) devices not only act as data sources but also change the way partnerships are created.
The influx of real-time data opens the door to real-use insurance. The classic example here is car insurance. If actuaries can track where, when and how fast a car is driven, their risk measurement will be much more detailed.
But there are many other uses for real-time data like this. A holiday home can, for example, be covered by a use-based insurance that only comes on when the IoT devices that run it discover that someone lives there. Specialized, expensive equipment ̵
1; say a super-heavy crane that a construction company only uses a few times a year – can only be covered when it is actually used.
However, even these examples are not entirely new. The most exciting applications of this type of data are for me some of the least considered. If actuaries had real-time sales data access from a reseller, why could they not offer use-based commercial insurance? In the same way, life insurance usually has a 30-year horizon today. But life insurance actuaries have secure access to the customer's health data through, say, their Apple Watch, why could the policy not be adjusted in real time?
The use of digital data such as this is closer than we think in many cases. And when it does, it will be actuaries who link data to the insurance policies.
In my next post in this series, we will look at becoming a Leapfrogger in the insurance world.
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Disclaimer: This content is provided for general information purposes only and is not intended to be used in consultation with our professional advisors.