What are digital twins and why should insurance companies care?

The insurance industry has relied on data since its inception. At the same time, several other industrial sectors have proven that there is a need for a fundamental change in the way data is used – a change that will have far-reaching consequences for the future of North American insurance companies and their customers.

In the past, insurers used insights based on historical data to inform their business decisions. But they now have the opportunity to understand their customers and their business in a whole new way due to:

• The advent of cloud computing.
• A proliferation of additional data sets thanks to asset instrumentation.
• Real-time or streaming data and analytics.

Our latest Technology Vision for Insurance highlights the importance of data for insurance companies and suggests that a key trend is the implementation of intelligent digital twins and a step towards a mirror world.

What are digital twins?

Digital twins are a virtual replication or mirror of a physical system. As a way of visualizing and contextualizing data from physical and virtual assets, they bridge physical activity and digital opportunities, and enable the sharing of information with ecosystem partners. In the beginning, digital twin models were limited in size and complexity, but their scope is growing rapidly now with the addition of AI and automation. They also increasingly require the use of sophisticated analysis.

Technology Vision for Insurance 2021 – We outline five new technology trends that will affect the insurance industry in 2021 and beyond.

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How are digital twins used in other industries?

Outside the insurance sphere, digital twins are linked together to create living models of entire factories, product life cycles, supply chains, ports and cities. Companies use them to understand the predictability of the supply chain, worker safety, maintenance and repair costs and as a risk-free playground for innovation. For example, Unilever is working with Microsoft to develop intelligent twins of its plants so that they can test potential operational changes and improve production efficiency and flexibility.

With the help of AI, companies can act on the basis of this information. They can:

• Respond dynamically to real-time information
• Ask “what-if” questions about possible future scenarios
• Design and test new products in the virtual world long before you ever physically designed them

When we asked managers, 65% said they expect their organization’s investment in intelligent digital twins to increase over the next three years. I’m not surprised. I agree with my colleagues that intelligent digital twins are driving a gradual change in how companies work, how they collaborate and how they innovate. And I believe that insurance companies that choose not to take advantage of the many benefits of digital twins will struggle to participate in the markets and ecosystems of the future.

In the following post, I will look at why insurance companies have been slower than their counterparts in other industries to adopt digital twins, four areas where you can take advantage of digital twins to your advantage and how you can put intelligent digital twins to work.

In the meantime, if you want to learn more about the technology trends that are expected to affect insurance companies, read our report: Technology Vision for Insurance 2021